Emotional Finance



It’s extremely difficult for consumers to make decisions that are unfettered by emotion. Imagine the typical weekly trip to the local supermarket. Despite the rigid restraint of sticking to a pre-determined shopping list, the colours, the brands, the cunning displays and the product placements play havoc with our sensations. It is no secret that stores spend a great deal of time making the weekly shop a pleasant and emotionally enjoyable experience – constantly tugging at the sensitivities of consumers to reach for those extra items and spend a bit more. Perhaps severe monetary constraints and/or super willpower allow some consumers avoid the indiscipline but it’s not easy!

Neuroscience explores these issues of human behaviour in great detail but it’s not an isolated activity. For example, using our supermarket analogy, if consumers go shopping on an empty stomach they buy more foodstuffs. If they see items reduced in price on special offer they purchase more. If they see two identical items one with black and white packaging and one in colour they opt for the latter. This all goes to prove that emotions play a significant role in determining how consumers make decisions. But could this bias also extend to how we make bigger decisions?

Faced with a medical procedure and the choice between two very experienced surgeons; do we choose the good-looking one? Or the one who’s better groomed with a nicer manner? It is irrational to think this way but we do it all the same.

When estate agents are promoting a property for sale they invariably accentuate the positives and play down the negatives. Wily consumers believe they can see through these tactics and yet their emotions can be easily swayed by the smell of freshly-ground coffee; stylish décor, a clutter-free kitchen and a clean loo. It is hard to stick to the routine of ticking off the preferred options (three bedrooms, south-facing garden, on a bus route, etc.) when challenged by positive emotional experiences (the sellers seem really nice people and their kids are gorgeous).

Are the experiences of consumers any different when they are buying insurance or investing for their futures? Regrettably not, because they are faced with the same emotional challenges! Glossy brochures and smiling happy faces are common features of the financial planning world. Consumers are genuinely swayed by these images. It is unbelievably boring to have to read through pages of turgid language. Examples in boxes (coloured of course) condensed into simple tables and upwardly-pointing graphs are much more appealing.

Being aware of our failings is a great starting point but overcoming our inability to react rationally is a constant challenge. Financial actions that result from emotional decision-making can be particularly costly. By far the best approach is to devote time and then more time to understanding the financial services on offer. There is seldom a situation where a financial decision needs to be unduly rushed. Spending time with our customers will continue to be one of MMPI’s primary objectives in business.

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