How behavioural science can improve SA’s savings rate and promote better decision-making
Adam Gottlich, Head of Behavioural Science for Client Solutions at Standard Bank
As financial services organisations integrate behavioural science deeper into their operations, the industry has an opportunity to promote healthier savings rates by encouraging consumers to make better financial decisions.
South Africa has one of the lowest savings rates in the world. Aside from the fact that most consumers are not adequately prepared for retirement, this is a major drag on fixed investment and economic growth. Behavioural science – the cross-disciplinary approach to understanding human actions and habits – is becoming a useful tool in our efforts to address this issue.
Behavioural science has become an important function for technology, consumer and financial services groups, and is increasingly being used to inform product development, marketing, and customer communications.
The end-goal is to become more customer-centric by creating personalised solutions and experiences for individual clients, based on their specific needs.
Financial services groups that get it right will have more satisfied customers and better retention rates – a significant competitive advantage. At the same time, these firms will be better placed to encourage customers to make decisions that deliver long-term benefits, rather than being solely focused on the near-term.
Overcoming present bias
Partly because of our age-old survival instincts, humans prioritise the present, often to the detriment of their future selves.
Studies show that when we think about ourselves in the future, the ventromedial prefrontal cortex – a part of the brain that plays a key role in social cognition – displays the same activity as when we think about complete strangers. In other words, we struggle to identity with future versions of ourselves.
This can be overcome by actively nudging ourselves to identify with future versions of ourselves so that we make better long-term decisions, today.
Leveraging behavioural science insights and methodologies, financial institutions can also prompt clients to act with the future in mind.
To democratise the use of behavioural science companies need to continue to develop toolkits and deploy it across their operations, while also creating online courses for the workforce.
We have seen toolkits drive double-digit growth in sales by helping teams to better understand consumers so that they can overcome some of the barriers when it comes to purchasing certain products.
By specifically helping clients overcome present bias, this approach has also led to better customer retention rates in the insurance segment. Business needs to empower teams with the resources needed to hold more human and empathetic conversations with customers, with the goal of helping them understand the long-term implications of their actions so that they can make informed decisions.
And by identifying the channels and language that best resonate with consumers, behavioural science is playing an important role in enabling financial literacy. To use a simple example, we have found that by talking to consumers about ‘car insurance’ rather than ‘vehicle insurance’, clients tend to be far more engaged when discussing these solutions.
These teams are increasingly working with product developers, marketing units and channel designers to test new approaches and ensure that consumer psychology is deeply embedded in our client solutions.
We believe this will create value for ourselves and all stakeholders. By encouraging long-term thinking, and by advancing financial literacy, the financial services industry can better meet the needs of clients while also promoting higher savings and investment rates.