s more knowledge enough to help people do better with their money? New research shows seeking face-to-face advice from a professional can support better financial decisions.
When it comes to doing the ‘right’ thing, money decisions can be right up there with healthy eating and exercise. We might know that sticking to a budget, spending less and saving are things we need to be doing to keep our finances on track for future goals such as a family holiday, new car or home deposit. But like skipping the gym to get an extra hour in bed on the weekend, sometimes we make choices about money that aren’t based only on what we know.
Knowing too much can cause confusion
This is an insight behaviour change agency Karrikins Group share in their recent report How to really build financial capability. In the course of her research and analysis for the report, award-winning neuroscientist Dr. Emily Heath has explored what works and what doesn’t for financial education programs. Her findings highlight the fact that many of these initiatives assume that boosting financial knowledge will result in better choices and outcomes for the people involved.
Thanks to the digital age we live in, easy access to knowledge about our money options isn’t hard to come by. But as this report highlights, the more information we have, the harder it can be to take in and assess the pros and cons of so many different options. “There is increasing choice among financial products, so that consumers have to comprehend, analyse and compare a snowballing number of options when making decisions,” writes Dr. Heath.
This is an experience with financial decision-making that Australians have put words to in a recent report by ASIC. In group discussions and interviews more than 60 people were asked to share their views on financial advice. One participant said “I can research all I want but really, we need a professional. I am not sure [our] reading will land us anywhere.” Dr. Heath agrees that your average person can’t be expected to make sense of the huge range of financial options available, not to mention all the complicated jargon that comes with them. “Expecting a consumer to acquire all of the knowledge, insight and comprehension required to manage and maintain their financial decisions is like expecting a patient to perform surgery on themselves,” she writes.
What drives better financial choices?
After debunking this myth about the direct link between more knowledge and better financial outcomes, Dr Heath sets out to pinpoint the factors that do help people improve their financial choices and outcomes. In the report she lays out 10 principles for designing effective financial support programs, from focusing on willpower to getting the timing right for an intervention.
At number five on this list is building personal human connections. Dr Heath emphasises the important role other people play in influencing our financial choices and behaviours. In reviewing a number of financial education programs, she discovered that having advice or support delivered face-to-face made a big difference to the impact on people’s actual behaviour. “Efforts to change financial behaviour are the most effective when the influencer (or educator) is able to form a personal, human connection with the person they are trying to influence,” she writes.
Personal Approach makes all the Difference
The report goes on to say that tailoring advice to meet individual needs is an important part of this face-to-face approach to setting people up for financial success. This idea that there is value in getting professional financial advice that matches our unique situation is backed up by survey findings in the ASIC report. One of the biggest benefits people saw in seeing a financial planner was “that financial advice could help them to make the most of their financial circumstances by improving their financial decision making and setting up the right behaviours (e.g., saving) for future success. “
Another key area where survey participants felt professional advice could make a difference was in helping them feel less stressed and anxious about their finances. This is another issue that Dr. Heath says can cloud decisions about money and lead to poor financial outcomes. “Put simply, stress changes our brain and makes us more prone to mistakes of thinking, feeling and execution,” she writes. “This is likely to have large effects on financial decision making.”
Stu Varidel and Your Choice Financial Planning Pty Ltd trading as Heart Financial Advisers are authorised representatives of Sentry Financial Services Pty Ltd AFSL 286786.
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