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Take a moment to think about items you use every day. Your smartphone. Your laptop. Your car. Now ask yourself if you really understand how they work. For example, do you know how a microchip makes it possible to play games on your phone? Do you understand how a microprocessor grapples with binary data to allow you to watch YouTube on your laptop? And do you know how all the nuts and bolts in your car’s engine work together to propel you forward?
Even when we’re formally taught how something works, we rapidly forget when it has no practical relevance in our life. For example, I imagine you were taught the basics of how electricity works at school but could you now confidently describe how the three little holes built into the walls of our houses give power to a myriad of household items?
If you’re anything like me, you probably don’t have this level of understanding for most products, without which we’d be lost. And, let’s face it, we have better things to do than attempt to learn the specifics of all the things we take for granted.
As a general population, we no longer need to understand everything we use. Adam Smith’s division of labour showed how it’s more efficient to entrust others to understand specialist areas and let them trust us to understand ours. The result has been that we can all make significantly more progress than if we attempted to comprehend everything ourselves.
Today, for the most part, we don’t need to understand how things work, just how they can help us make progress in our life.As you likely know, the FCA’s Consumer Duty has set ‘consumer understanding’ as one of the four outcomes of the guidance.
With a focus on creating financial products and services better designed to meet people’s needs, shaping communications which support customers make effective and timely decisions, and not exploiting any behavioural biases which could lead customers towards negative outcomes, the guidelines are a great step forward.
The concern comes when firms take only the headline of ‘consumer understanding’ and leap to the conclusion that the solution is to educate consumers on the intricacies of their products and the finer details of financial theory.
This is further compounded when consumer research comes to the same conclusion. Over the years, I’ve personally conducted hundreds of one-to-one qualitative interviews with consumers, particularly in the area of wealth. When speaking with the mass of those who don’t invest but have a nagging feeling that they should be (an ever-growing population as we watch inflation ballooning), the key question is what’s stopping them. The response is always a variation of, ‘I don’t invest because I don’t understand it.’ Many follow this up by sharing their wish that there was some information which could help them understand.
When financial teams hear this directly from consumers, the natural reaction is to create financial education projects. Articles, videos, animations, blogs, infographics, webinars, social media posts, newsletters, emails, courses, and many more creative ways to share financial topics are borne out of running customer research.
Such education projects are well-intentioned, often well written, and creatively produced to distil complex information into bitesize chunks. But when I’ve chatted with teams about the success of such projects, I watch their shoulders drop as they share that despite the research showing their customers requested more information, when they provided it, very few bothered to engage. And more importantly, they often share that the provision of education didn’t increase the probability that a customer would take action to consider a suitable financial product.
So what’s wrong? Firstly, let’s sense check the response from customers who wish there was something out there which could help them understand. Does this really not exist? I would argue that there’s more support, guidance, and knowledge sharing around financial decisions than there ever has been in the history of humankind. From books and articles easily accessible online to TikTok videos, we’ve never lived in a time with more information sharing. Now, of course, this could be a problem in itself. With so much to choose from, where do you start? But this isn’t the response from the research; the reaction is that they don’t feel there’s anything right for them out there at all. The likelihood is that people don’t think it’s there because they’ve never been motivated to look for it.
It’s this delicate balance between customers feeling they need more information but not engaging when someone delivers it, which bamboozles many organisations. At Behaviour Consulting, we apply the Behaviour Lens framework to help demystify the reality of how people make decisions and progress to action. Multiple psychological models underpin the framework to help firms tackle the puzzle of customers not engaging with the information they themselves asked for.
The Behaviour Lens reveals that no matter what people say in the comfort of a research environment, they want to feel they’re making progress in their life more than they want to learn the intricacies of finance. Remember, these customers nearly all drive cars without understanding what a spark plug does because they understand the benefits car driving offers against the associated risks.
It comes down to the definition of ‘understanding’. As experts in the financial world, it’s easy to fall prey to the bias of thinking everyone else should be interested in what you know. Think of a time when you’ve been stuck chatting with an enthusiast in a particular area where you have no interest (for me, it’s always golfers for some reason). They go on about their interest, sharing technical details that they find fascinating, with no sign of empathy for the poor soul suffering on the other end. Well, that can be us sometimes too. ‘Hold on’, you might say, ‘but this is an area which will help the person, so they should listen.’ However, just because information could lead to a more positive outcome doesn’t mean someone will listen and act. For example, I worked on a healthcare project where patients weren’t taking their heart medication. Amazingly, sharing information failed to improve the patient’s behaviour despite raising awareness that their current non-adherence significantly increased their chances of dying. When the possibility of death doesn’t motivate people to take action, what hope has an article or video about beating inflation got?
The number one worst approach to changing behaviour is to present information and hope it leads to attitude change and then behaviour change.
– BJ Fogg, behavioural scientist at Stanford University
A better interpretation of consumer understanding would be to help people know how financial products and services will help them make progress in their life. One of the underlying theories in the Behaviour Lens framework is Self-Determination Theory (Ryan & Deci, 1985). This suggests that there are three basic psychological needs which represent innate requirements to act: Competence, Autonomy, and Relatedness. Competence refers to people’s need to feel effective in a particular context and achieve a sense of progress.
Autonomy refers to feeling that you are the source of your own behaviour. And relatedness is the feeling of being connected and cared for by others. If firms can support customers to feel confident in making progress for themselves and others around them, they’ll be far more effective than attempting to be the teacher in the relationship.
One way to do this is to support customers to take baby steps toward financial products. To share an analogy, consider how children learn to perform a cartwheel. Do they sit reading a gymnastics textbook and study videos until they’ve built enough confidence to launch into a perfect cartwheel? No, they start with a little monkey jump and then move to a slightly bigger jump until, eventually, they’re cartwheeling dizzily around the garden. This method of practising with incremental increases is a more effective way to build the feeling of competence and is something financial firms could benefit from integrating into their services.
If firms want to deliver good customer outcomes proactively, they should do more than simply improve how they communicate information. They should consider if providing information is really the most effective way to support customers in the first place. So, while Consumer Duty is a great step towards meeting people’s needs, if firms misunderstand understanding, it could lead to even more time-intensive ‘education projects’, which sadly will just add to the existing mountain of information out there that very few of your clients are looking at.
Paul Davies is consulting psychologist at Behaviour Consulting
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