Description of the programme

This experimental study follows on from a previous wide-ranging review of existing research (Challenges for the Provision of Financial Advice, published September 2007) which identified many different factors that affect people’s success in action-taking, including the source of the advice itself, the way in which it is delivered, and the type of person receiving it.

The experiment was run by Decision Technology Group for AXA. It recruited 1,000 online participants across the UK to engage with a scenario where they received financial guidance that could help them earn real money. The aim was to test the effect of delay on taking action, the importance of offering persuasion as well as advice, and the effect of ‘financial personality’ attributes on whether people take action and the quality of the action they take.

People were given the option of completing a real-life-style decision, acquiring and processing financial information, and using this to decide which of five hypothetical credit cards they would transfer a ‘virtual’ balance to. Participants received real payment in proportion to the money they would have saved by making their choice.

The study

An experimental study that tested three hypotheses on taking action in relation to financial advice:

1. The sooner people are allowed to take action; the more likely they are to act.
2. The easier it is to take action; the more likely people are to act.
3. The more people are persuaded to take action; the more likely they are to act.

This was done through an online survey of 1,000 participants by:

• Varying when people were able to act – half the group were told they had to wait two hours (to replicate handing people from one financial adviser to another);
• Varying the amount of information and persuasion given, with some people given information similar to the kind of information available on price comparison websites with others also given a recommendation and motivational statements.

What are the outcomes?

• The study explored the effect of delays on taking action, the significance of offering persuasion as well as advice, and the effects of ‘financial personality’ attributes, like inertia, fear of regret, and risk preference, on whether people take action and the quality of the action they take.

Key findings

• • Around a third opted not to make the decision and this group had high levels of inertia, and high levels of innumeracy. In other words they either didn’t want to change things or didn’t feel equipped to do so.
  • Those who are most financially innumerate – and who would therefore benefit from financial guidance – are least likely to engage with finance-related tasks.
  • Making people wait reduces action taking: Of those who had to wait two hours before making a decision, a significant proportion did not complete the task. People who completed the task were more prone to regret; inertia was an inhibitor for those who did not.
• • Decision-making quality was poor: Of those who made a decision (to choose a card) under a third made the correct choice with information only; with advice, this rose to just over a half; those who had to delay made better decisions, rising to almost two-thirds.
  • Demographics appear to have a relatively small effect on people’s behaviour, rather ‘financial personality’ (including inertia, fear of regret, innumeracy) has much more of an effect on both the extent to which people take action and the quality of the action they take.

Points to consider

• It is unclear whether findings from the study - asking people to make a hypothetical decision about a credit card with a possible financial incentive – can be generalised more widely to other financial (real-life) decisions.
• There is no information on whether the sample is representative of general population and no information on the statistical significance of the results. Details of the analysis (e.g. on ‘financial personality’) was not presented. Also, the study is now 11 years old so caution is necessary when interpreting these findings.