THE IMPACT OF INFORMATION
Research shows the retirement decision-making process is influenced by the amount of information people receive, how easy it is to understand and its nature. The financial advice sector can give customers the confidence they need to make better decisions by providing them with education and awareness.
Improving financial literacy for all Australians is a positive step, although research suggests improved knowledge may not guarantee sound financial decisions. Confidence may be undermined when people are confronted by too many choices and feel their knowledge is limited.
Feeling inadequate affects individuals’ likelihood of participating in planning activities and/or may lead to people avoiding the decision altogether. Customers bombarded with too many facts, figures, stats and information will feel less informed.
Another consideration is people’s scarce resource is attention rather than information. Professor John Payne of Duke University says by focusing on people’s values we can help them make better decisions.
After all, our values drive what we pay attention to, which subsequently dictates our choices. But the financial industry is prone to using jargon, complicated product definitions and technical terminology people don’t understand.
In an environment with daunting publicity about the retirement saving gap, diminishing trust in financial advice and a changing digital landscape, it is the responsibility of the industry to embrace clearer and simpler communication to connect with customers on emotional level to promote value-based decision making.
SELF-CONTROL AND PROCRASTINATION
The longer we delay things the harder it is to start. How many of us say “I’ll start my diet on Monday”, or “I’ll go for a run in the morning”, only to do nothing of the sort?
We often discount long-term benefits of our choices and focus on the immediate ones. Buying a new pair of shoes is way more fun than saving for the future.
Research shows people know they are forsaking long-term goals for instant gratification but still do it. So if we have the right intentions and aspirations, can digital technology play a role in controlling instant gratification? And help in incentivise saving?
Israeli non-profit organisation Round-Up enables credit card holders to have their transactions rounded up, with remainder donated to a charity of their choice. A similar program could be designed to divert the remainder to a customer’s savings account. By using this available technology, we could have our customers saving while they spend.
The financial services sector has an opportunity to change from rewarding spending to rewarding saving and deliver immediate benefits back to customers in an easy to understand manner that overcomes the issues of unproductive behaviours.
Such efforts need to be supported by an ongoing effort to understand consumers’ financial personality, identify their needs and help them with saving psychology so they can see how it impacts their future.
VIVIDNESS OF THE FUTURE SELF
It can be hard to imagine what your life will be like in 20 years’ time. But what if we could use data to make images more vivid and build the emotional connection for our customers? Imagine the positive impact on our industry and also health and education.
Prof Dan Goldstein together with Hal Hershfield and Allianz use a behavioural time machine to test if people’s behaviours change when looking at a picture of their future selves. The software ages pictures of people in to their 60s, 70s and 80s so they can see themselves in the future, including the ability to make them look happy or sad.
The results show people who interact with their future selves had a propensity to save more and even doubled their retirement saving rates. It is a clear demonstration of how new technology can help motivate people to save through an emotional connection.
There are already applications already available today to see how people might look if they smoke, get too much exposure to sun or gain weight. Soon we will be able to accurately model how our financial decisions can affect our future.
I believe as leaders in financial services industry, we share a responsibility to help current and future retirees achieve a secure and dignified retirement.
We have the insights on how we can assist and benefit the financial lives of our customers and we have the ability and knowhow to steer our customers towards better financial decisions by:
• Building strong emotional connections with customers to motivate the desired behaviours;
• Valuing customers’ emotions and goals in decision making;
• Assisting customers with clear, concise language and value based choice architecture; and
• Empowering customers with tools to realise goals and balance between present and future selves.
By doing this we can genuinely help change our customers’ financial well-being as well as attract and retain new and valuable customers.
This holistic approach needs to be embedded in the whole value chain from digital engagement to product development, service delivery and advice to be successful.
Milena Malev is Head of Retirement Solutions at ANZ
The issuer of this communication is Australia and New Zealand Banking Group Limited (ABN 11 005 357 522, AFSL 234527) (ANZ). The opinions expressed are those of the writer.
The information in this communication is current as at 20 May 2016 and is subject to change. The information is of a general nature and has been prepared without taking into account your objectives, financial situation and needs.
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