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What Prevents Users from Making Better Financial Decisions?

by Colleen Roller
7 min read
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Making sound financial choices requires people to behave in ways that challenge many of our tried-and-true experience design methods.

If you’re a UX Designer working in the financial services domain, you’re well acquainted with the reality that many people are not making good financial decisions. As designers, we know it’s a challenge to design systems, websites, and tools that actually succeed in getting people to do better. The question of why people are having such a hard time making good financial decisions is central to any solution we design in this realm. Even though people clearly want to do better, it often seems they are inherently unable to.

After reviewing research in the areas of behavioral decision theory, cognitive psychology, usability, and UX design, I’ve come to the conclusion that there are seven primary reasons why this difficulty exists. While an in-depth article could easily be written on each of the seven reasons, my purpose here is to call attention to some of the most significant barriers that prevent people from doing better. Until we gain insight into what people are up against, we can’t create designs that result in the kind of breakthrough outcomes desired.

If you work in other industries where similar barriers play a role—such as in health services, for example—these seven reasons should resonate. Ultimately, there are takeaways here for all experience designers, since when it comes to making better financial decisions, we face the same barriers as our users.

1) The Future is Ambiguous

Most financial decision-making is concerned with planning and saving for the future. But the truth is, the future is ambiguous. Pretty much everything about the future is unknown. We don’t know how long we’ll live, what kind of health we’ll be in, what our financial needs will be, how our investments will have performed, or what the state of the world or the world economy will be.

Bottom line, it’s a gamble. We have no guarantee that what we save today will ever come back to us. And for many, that’s a bitter pill to swallow.

2) The Distant Future can only be Viewed Abstractly

It turns out that how we are able to think about the future has a lot to do with how near or far away it is from a time perspective. Research shows that people think about events in the near future more concretely than those in the distant future. So, for example, if I ask someone how her move next week is coming along, she’ll likely talk to me about specifics—what she’s been able to accomplish, what’s still on her to-do list, etc. If, on the other hand, her move is not until next year, she’ll likely respond in a very different way. Now her description will be much more abstract and conceptual, with very little mention of concrete specifics.

How we’re able to envision the future has a lot to do with how near or far away it is. Because retirement is in the distant future for many people, they have difficulty taking definitive steps towards planning and saving for something that can only be envisioned abstractly.

3) There are no Deadlines for Starting to Save

There are no definitive deadlines when it comes to saving for the future, and that makes it very easy to postpone getting started, especially when there are other more immediate needs, such as paying the bills that come due tomorrow or next week. The truth is, it’s difficult for people to see a difference between starting to save today versus tomorrow or next week—or even between next month and next year.

Because there are no definitive deadlines, there are also no consequences or feedback associated with either meeting or missing a deadline (as opposed to when you fail to pay a bill that’s due this week). When people begin the process of saving for the future, the immediate rewards grow no sweeter. And when they fail to start saving, the consequences grow no worse. Timely and instructive feedback, as most UX professionals know, is a critical means of helping people to respond and behave in productive ways.

4) It’s a Challenge to Simply Get Started

For many people, it’s tough to even get started. People’s natural tendency is to resist change and maintain status quo. Research shows that people are incredibly sensitive to even a minimal threshold of work or effort. Making a decision about how to move forward, after all, is work. Certainly, making a decision is more work than making no decision. Unless people have a particular incentive or a compelling reason for expending the effort to make a decision, they are just as likely to not decide.

Research shows that people are incredibly sensitive to even a minimal threshold of work or effort

For the most part, a person’s objective in decision making is to arrive at the best possible decision outcome with the least possible effort. Of course, these two variables—effort versus optimal outcome—are usually at odds with one another. Better decision outcomes typically require more effort, especially when it comes to financial decisions, which by nature, tend to involve a certain amount of complexity.

5) The Reward System Backfires

Life is made up of actions and behaviors that lead to consequences. You do something (or fail to do something), and a consequence occurs. The action/consequence sequence is an important one, primarily because it helps us understand how life works.

When it comes to saving, though, an interesting thing happens. When I put money aside into a savings or investment account, I incur the pain of not having that money to spend today. But when I don’t save, I don’t incur the pain because the money is readily available for me to spend. In other words, I get rewarded when I don’t save! The reward system, then, backfires. People get rewarded (today) for doing the wrong thing, and penalized for doing the right thing. The end result is that we lose an effective behavioral motivator.

Added to this is the reality that people inherently exhibit poor self-control. In our very now-centered culture, where instant gratification has become the norm, visible signs of wealth are often a primary means to gaining status and respect, and an integral part of “keeping up with the Joneses.” Spending money today on things that can visibly attest to my level of wealth can feel much more rewarding than setting money aside into an “invisible” savings or investment account that no one else can see or have an awareness of.

6) Financial Choices are often Overwhelming

Many people have a limited understanding of the financial domain and because of this, they feel uncertain about what actions to take. They’re not sure about how best to invest, so they don’t invest. Add to this the large number of choices available when it comes to picking investment options. When asked to select investments for their 401(k), for example, many are simply overcome by the number of choices, which can number in the hundreds for just one type of investment alone.

People also feel a necessity to make the right choice while simultaneously fearing they’ll make the wrong choice. So what do they do? In a word: nothing. The need to make the absolute best choice and avoid the wrong choice results in decision paralysis. To add to the burden, many people believe their particular needs and situation is unique—that somehow, they need a tailored solution specific to their own needs.

7) People are Inherently Optimistic and Overconfident

Research shows that people typically consider themselves above average when compared to the rest of the population. When asked about what kind of a driver they are, for example, many people respond that they consider themselves to be better drivers than others. Even in the thorny area of financial decision-making, people are overconfident.

In light of the previous six reasons, overconfidence seems like a surprising problem. How can people who feel unsure about their financial management skills, who have a hard time planning for and envisioning the future, and who are overwhelmed with too many choices, possibly feel overconfident? Even though people are unsure and overwhelmed, they tend to believe that even in spite of everything, the situation will work out. Overconfidence and unrealistic optimism can be a significant cause of poor financial planning.

How to Help

Surely it’s no surprise to UX professionals who work in the financial sector that the territory itself is challenging. Traditionally, these challenges have been addressed by trying to improve the presentation and delivery of information—e.g., helping people better understand their options and the risks of not saving, helping them learn how to become better investors and savers, etc. But this approach has not offered the kind of breakthrough success that is needed.

The problem isn’t so much about the lack of information or education as it is about the realities of human nature. The problem isn’t that people don’t know they should be saving, or even that people don’t understand enough about the mechanics of saving or investing. People seem to know, at least on an intellectual level, that they should do a better job of saving. But for many people, this intellectual knowledge doesn’t seem to be enough to get them over the hurdle of getting started or saving enough. A disconnect develops between what they say they want versus what they actually do.

For experience design practitioners, the problem is exacerbated because our UX toolbox seems to be much better equipped to solve for information design than it is to solve for the challenges of human psychology. While designing for optimal information content and layout is essential, it’s not adequate by itself, to deal effectively with the challenges laid out in this article. That’s why, in my next article, I’ll examine some design solutions that have been particularly effective in the financial services domain, and specifically, how their success can be attributed to the way in which they’ve addressed the human psychology issues I’ve discussed here.


Image of broken piggy bank courtesy Shutterstock.

post authorColleen Roller

Colleen Roller, Colleen Roller has over a decade of experience in making websites easy to use. One of her primary interests is in Decision Architecture - designing websites for user decision-making that increases customer satisfaction and achieves business objectives. She is a published writer on this topic, with articles appearing in UXmatters and the QRCA Views Magazine. She has also presented to corporate audiences such as Bank of America, Fidelity and VistaPrint, as well as for the Usability Professionals Association and as an invited speaker at Bentley University. She is forever fascinated with the workings of the human mind, and with the art and science of designing for it.


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