If you haven’t heard Dan Ariely speak, do a YouTube search, his research and talks on the psychology of money are fascinating. Ariely is a professor of psychology and behavioural economics at Duke University and a founding member of the Center for Advanced Hindsight.  He opened Digital Banking Week yesterday discussing ‘the Psychology of Money, fairness, effort and trust. 

If you didn’t register, here are some key points from his talk. 

Digital allows us to change the money environment. 
Solutions need to start being customer-focused to impact financial wellbeing. The opportunity in money right now is being able to use digital to design the environment. A mobile app is not just a tool to deliver a reminder, it’s an actual digital pipeline with money going in and out, a device that can help us make better decisions with money and a tool that gets people to act in their own best interest. 

Humans are terrible at making good decisions. 
It is human nature to act against their own best interests because we are not programmed to think about opportunity cost which is if you buy something today, what are you going to give up?

Thinking correctly about money is not humanly possible because we think in relative terms, rewards or the pain of paying. 

Life is tempting, we are in an environment that wants things from us – our money or attention. You can go to the supermarket with a list but the environment is designed to make you spend more. The temptation industry has gotten better, 43% of people now die from preventative disease relating to bad decisions. 

Making financial decisions is harder because the environment around us is designed to take our money. Budgets don’t make us feel good, we are likely to fail a lot just like dieting because we punish ourselves. 

When used correctly, data can tell a story that changes behaviour. 
We have a tendency to give people data in the way we record it but it needs to tell a cause and effect story and remove the small fluctuations that demotivate. The messaging we use is ‘here is what you have done, you are moving in the right direction’, we can give them more motivation to act. We can teach people more about getting happiness from spending less, changing habits around the expectation that spending more means more joy or satisfaction.

Banks have a moral obligation to their customers.  
Where are the boundaries of the bank? Conflict of interest erodes trust, so remove that from the business model. Insurance is based around conflict and mistrust so people lie and companies make it hard to make claims. 

Banks need to have trust with customers and show they are invested in good outcomes for the customer.  At an advocacy level, banks need to demonstrate that they are making recommendations at their own expense. Banks need to sacrifice something for their customer benefit, incentives need to be aligned. 

Financial literacy as we know it does not work. 
Financial Literacy is one-directional and based on good intention but it does not work. People remember some information but it has never changed behaviour, tools make people remember. We need to design things in a different way, we want to respect peoples freedom and choice but this delivery of information is too respectful. Being forceful in helping people is necessary but hard, same with health and doctors. 

The guilt and shame around debt feel like admissions of personal failure. Financial services need to be an open discussion about other things like how to say no to kids, how to inspire pride in saving, where to save and how, and experiment with being happier living on less money.  Ask ‘you can buy this but should you?’. 

More to come from other speakers…