Banking on behavioural economics

When it comes to money, even the well-informed can find it difficult to make optimal choices. Looking at the entire UK population, more than half are saving inadequately for their retirement. According to the FCA over 3 million hold persistent credit card debt ¹. And one in three working families may be as little as a pay cheque away from being unable to pay for their homes².

There are many reasons why people may find it difficult to manage their finances well, and research increasingly shows that we often fail to make decisions that best serve our fiscal aspirations. One such research discipline is behavioural economics - an emerging field at the intersection of economics, psychology and sociology that we believe can be used for developing practical tools to help people manage their money better.

The cost of poor financial decision-making is considerable, from retiring without adequate economic resources to high interest payments on debt or losing out on long-term investment growth. The latter, also known as ‘reckless conservatism’, is to a large extent attributed to perceived complexity of choice, lack of clear guidance and aversion to experiencing short-term fluctuation in the value of funds. As a result, it can lead to an expensive inertia, where capital is eroded by inflation and consumers fail to capture the extra return on equity they can get over and above saving accounts.