21 Aug What emotions are associated with dealing with the Financial Industry
Emotions are one of the biggest aspects of our life that make us who we are. They drive our personalities, our relationships to one another, even our financial decisions. Those of us in the financial industry may like to think of finance and banking as rational, clear cut, based on facts and figures. But, the truth is, financial decisions are affected by emotions, just like the rest of our lives.
So the question is: How do emotions affect financial decision making processes and how can we manage emotions effectively to ensure the best outcome for customers?
Sadness and Financial Impatience
Psychological scientist Jennifer Lerner of the Harvard Kennedy School of Government and colleagues Ye Li and Elke U. Weber of Columbia University studied the effects of sadness on financial decisions in 2012. The study consisted of three experiments and ‘explored how impatience brought on by sadness can in turn produce substantial financial loss. ‘These experiments, combining methods from psychology and economics, revealed that sadder is not necessarily wiser when it comes to financial choices. Instead, sadness—but not disgust—made people more myopic, and therefore willing to forego greater future gains for instant gratification’.
When working with customers who are known to be dealing with sadness, financial sectors should be aware that they are 13% to 34% less likely to value future monetary gains, versus those customers not experiencing sadness.
Happiness and Risk Aversion
A study by Delis, Kammis and Mylonidis in 2013 investigated the importance of trust and happiness in making financial decision amongst Dutch households. Their findings ‘indicate the importance of generalised happiness in financial decisions. Happier individuals are 6.1% less likely to invest in risky assets. This finding implies that happier people could have different discount rates and exhibit different risk attitudes than less people as found by Isen and Patrick (1983) and Ifcher and Zarghamee (2011).’
Therefore, financial institutions may find it more worthwhile to promote their savings and low risk services to self-reported happy customers.
From these studies, it is apparent that emotions do have a real and palpable effect on the financial decisions of everyday people. For this reason alone, it is imperative for financial institutions to understand how emotions may affect individual thought processes in relation to their industry. On another level, developing the emotional intelligence of front line staff and incorporating this into customer service training may help the profits and customer retention figures.
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