By Dr. Simon Moore, Chartered Business and Consumer Psychologist
The aim of this article is to provoke some thoughts and considerations of how you, as leaders in financial services, might augment your communications to engage both systems of your audience’s brains—the smaller conscious, practical part and the larger nonconscious, emotional part.
The financial industry worldwide is, firstly, governed, framed and communicated in numbers. So, it is unsurprising that organisations in this space engage with clients in terms of numbers around risks, gains, yields, outcomes and so on. This makes perfect sense if we take it at face value from an industry perspective. Yet, if we look at it from another angle, that of human psychology, total reliance on communications based purely on numbers represents a not-so-insignificant set of problems—problems that assume we know what our audiences need (facts, figures, numbers, logic) or they fully understand what they need; problems that disempower the effectiveness of financial product and service communications as we assume people are more confident with their finances than they are; problems that fail to fully engage or be relevant to our target audiences because we assume what people’s motivating factors are to engage with money; problems that undermine our organisation’s ability to differentiate itself in a crowded market and create a nonnumerical-based reason to engage with us.
While one could write multiple doctoral theses on this subject, I will attempt, for the sake of this short article, to discuss the impact of a few of these psychological problems in relation to financial planning and decision-making (problems that apply regardless of culture, gender or geographical location). I will narrow the focus somewhat and consider several problems that are linked while assuming that our audiences are governed by rational, logical, computer-processing-type brains. I will counter this assumption by discussing the impacts of emotions on decisions, then evaluate the importance of our nonconscious brain before ending with the influences of cognitive biases in the financial sector.
Before I do this, however, I would like to use an example of the difference between the logical assumption of what our consumers need and the psychological reality of their needs. This example should highlight how behavioural science positively contributes to our understanding of client/consumer financial decisions.
We worked with a global banking brand. Its managers had just been informed—by their retained marketing and creative agency—that people distrust banks. This was a logical assumption, as many of the bank’s customers were feeding back that they did not trust it. Given this, the bank invested a large sum of money in a very number, fact and logic-led campaign that tried to improve its “trust” standing with its target audience—how many years it had existed, its financial prowess, its favourable rates, how many experts it could field, etc. It subsequently lost 8 percent of its market share. The bank’s executives asked for our help to explain what on earth was happening from a consumer-psychology perspective. We revealed that people consciously “stated” they did not trust the bank, but at a deeper, nonconscious, emotional level, they did not trust their own financial capabilities “more”. Consumers lacked financial ability but were embarrassed to admit it. So, rather than admit their financial frailties—and suffer losses to ego, status and self-esteem—it was psychologically safer to blame the bank. Discovering this, we helped the bank reframe its brand positioning—for both its internal and external audiences—by helping it support its customers to improve their financial confidence. Not only did it regain that lost 8 percent, but it also gained a further 8 percent of the market on top of that. We didn’t use only numbers and facts in accomplishing this; we engaged the emotional parts of consumer decision-making systems. We positioned the bank to be a capable financial institution (appealing to the fact-based part of the brain—20 percent of the brain’s attention) that offered support to its customers, reassuring and empowering them (appealing to the emotional part of the brain—80 percent of the brain’s attention).
I am not contending that numbers, facts and logic are not useful in communicating in this sector. What I am saying as a chartered consumer psychologist is that in order to engage the human brain, you need a stronger call to action. This is my first focal point: Emotional communication outtrumps information—at least at the start.
We know from psychological science that in terms of the brain’s activity and development, more of it responds to emotional communication than factual or numerical engagement. How we feel about something impacts and unduly influences how we trust, value and perceive relevance in it. Think about your friendship network—those friends who meet more of your emotional needs are probably those whom you feel closer to, trust more, value more and want to spend more time with.
There are many examples in life in which emotions completely outplay logic. Think of smoking, hangovers and poor partner choices in terms of relationships—we probably received lots of logical arguments for why we should not engage with any of these, but our emotional needs compelled us to, anyway. This is also true for financial decisions: We have seen consumers not engage in decisions that would have led to better financial outcomes due to emotional influences—feeling stupid when asked to complete forms or completely out of control and out of their depth. Yet, consumers will not openly tell you this as it is embarrassing. At best, most people in the world know when they get paid and when they are in debt—and that is the limit of their financial capabilities. The fact that, for the large part, many customers secretly feel underconfident in handling their financial affairs has wide implications for brand and product positioning, services and communications. Many underconfident consumers do not like facts and figures as they feel poorly skilled in understanding them, comparing them and putting them into context. Telling them that you are a big organisation that is an expert financial brand will probably make them feel even more anxious and hesitant to engage—as they can feel insignificant, unworthy, silly and patronised. Giving them more and more digital ways to manage their own money probably puts them even more out of their depth—how many financial organisations must spend large amounts of time and resources in dealing with customer complaints, problems and confusion?
The second problem related to assuming that our target audience is made up of rational, fact-motivated decision-makers is that if we appeal only to the logical, rational and conscious part of our brains, we are, according to psychological science, creating a weak message. Neuroscientists1 have revealed that far from making conscious decisions, most of our decisions are driven by the nonconscious part of our brains, including financial ones. That nonconscious part of the brain gives four to five times the impact on our decisions and behaviours. The nonconscious brain is also largely driven by psychological needs and emotions. Think about your plan for a long and healthy life. I would imagine you are consciously saying you have a long-term plan to stay fit and healthy, but your nonconscious brain has other ideas. So, you exercise, go to the gym, eat healthily and put conscious effort into that. However, your nonconscious brain might persuade you to eat snacks between meals, drink a few more alcoholic beverages than you ought, work long hours or even dwell on things that have gone badly. All these things have been linked to negative impacts on both quality and length of life. We must recognise that our nonconscious (automatic) brain can have undue influence over us—to the point at which we ignore logic and engage in so-called illogical behaviour. So, we have seen people who are overpaying on their mortgages but do not switch to a better deal—not because they are lazy or ignorant, but because they have an inherent fear of completing forms and anxiety about looking stupid. So, unconsciously, they are more motivated to keep overpaying than switch.
The emotional anxieties of the financial consumer and the influences of their nonconscious decision-making system are further compounded by a third problem area. Decisional errors plague all human brains—what we now call cognitive biases. Behavioural science has evidenced2 that when making judgments or decisions, people tend to automatically rely on simplified information-processing strategies called heuristics (mental shortcuts), which may result in systematic, predictable errors called cognitive biases. These biases influence lay people and professionals and seem innate and prevalent in our decision-making abilities. Psychologist Daniel Kahneman even won a Nobel Prize for demonstrating the prevalent influence of cognitive bias in financial decisions.3
While around 180 cognitive biases seem to influence our abilities to make the best decisions, let us consider just a few examples to examine their impacts.
Overconfidence bias is the common inclination of people to overestimate their own abilities to perform a particular task successfully.4 This is linked to another type of bias: the Curse of Knowledge. When you know something inside out, it is hard to explain it to others, as you have internalised that knowledge—finding it difficult to explain something you take for granted but with which others might struggle. Most people think (incorrectly) that the longer the length of time they take to invest in learning something, the better they will be at doing or demonstrating it. We have witnessed this behaviour widely in the financial sector—with financial professionals getting irritated and frustrated with audiences when they do not seem to understand, agree or follow instructions. The tendency to think we “know best” is common in most professional sectors. This overconfidence can also make consumers feel intellectually challenged, anxious and out of control.
Relative risk bias is a stronger motivation to choose a particular treatment when presented with the relative risk than when presented with the same information described in terms of the absolute risk.5 So, humans find it quite difficult to plan. As emotional beings, we tend to judge the future based on how we feel right now. So, if we feel good presently, we plan according to those feelings—being optimistic about the future and open to more risks and different types of solutions and services.6 If we feel negatively from an emotional point of view, we tend to be more pessimistic, less open and more defensive in planning our future lives.
Susceptibility to framing is the tendency for people to react differently to a single choice depending on whether it is presented as a loss or gain,7 and this can also be linked to how you view the world from your emotional-needs point of view. Are you someone who wants to gain something (risk tolerant and open to new things), or do you prefer to try to guard what you already have (risk-averse and looking to maintain things as they are)? These attitudes strongly influence not only what you seek in terms of your financial life but how I, as a financial brand or expert, need to communicate with you.
Having worked with international investment, pension, savings, mortgage and insurance brands, I have seen the impact of genuinely understanding (not assuming) the emotional needs of an audience. By creating communications that include facts and emotional needs, you will appeal to both systems of the brain and significantly improve the relevance and impact of your messages or propositions.
1 Frontiers in Psychology: “Chasing the Rainbow: The Non-conscious Nature of Being,” David A. Oakley and Peter W. Halligan, November 14, 2017.
2 Frontiers in Psychology: “The Impact of Cognitive Biases on Professionals’ Decision-Making: A Review of Four Occupational Areas,” Vincent Berthet, January 4, 2022.
3 Handbook of the Fundamentals of Financial Decision Making (in 2 Parts), Leonard C. MacLean and William T. Ziemba (editors), July 10, 2013, Volume 4 of World Scientific Handbooks in Financial Economics Series, World Scientific Books, World Scientific Publishing Company Pte. Ltd.
4 Organizational Behavior and Human Decision Processes: “Overconfidence in Probability and Frequency Judgments: A Critical Examination,” Lyle A. Brenner, Derek J. Koehler, Varda Liberman and Amos Tversky, March 1996, Volume 65, Issue 3, Pages 212–219.
5 The American Journal of Medicine: “Absolutely relative: how research results are summarized can affect treatment decisions,” L. Forrow, W.C. Taylor and R.M. Arnold, February 1992, Volume 92, Pages 121–124.
6 American Economic Association: “Present Bias: Lessons Learned and To Be Learned,” Ted O’Donoghue and Matthew Rabin, May 2015, American Economic Review, Volume 105, No. 5, Pages 273–279.
7 Science: “The Framing of Decisions and the Psychology of Choice,” Amos Tversky and Daniel Kahneman, January 30, 1981, Volume 211, Issue 4481, Pages 453-458.