Page 12 - Savings Psyche
P. 12

Removing the road blocks                                        fall, employers should be aware that fewer workers will be
                                                                inclined to sign up for pension programmes that they do not
Unfortunately for those with an interest in workplace           fully understand and which do not bear fruit for decades,
saving initiatives, decision-making paralysis is not easily     while workers not yet on the housing ladder may well
overcome, not least because it is reinforced by behavioural     prioritise saving for a deposit externally.
economic traits, such as the tendency to stick with the
status quo or procrastinate. Indeed, auto-enrolment             The loss aversion, so well known to behavioural economists,
currently has relatively low opt-out rates because it           acts as a significant impediment in the pensions and
sidesteps these traits.                                         long-term savings arena.

The challenge, therefore, becomes finding ways to enable        Trust implications
decision-making and mollify the fears and concerns that are
driving the paralysis simultaneously.                           Employers seeking to get more of their staff into workplace
                                                                saving programmes are able to make a difference.
One of the first things to consider should be whether choice
has a positive or negative influence on decision-making. It is  Trust has been shown to be an important decision heuristic
generally true that people want choice, and so many areas       in behavioural research. People often forego more detailed
of modern consumer culture seek to provide it. However,         evaluations and make a decision based primarily on whom
while it is good to have a choice of restaurants, food brands   they trust. When trust is absent, decision-making may well
and household appliances, there is a strong argument            not happen, especially if there is a confidence pinch point
that choice is not always a good thing for saving or            to overcome.
financial decisions.
                                                                Those seeking evidence for this need look no further than
Choice tends to add to confusion and procrastination. So,       the research. A lack of trust is the second biggest driver
although delaying a relatively low-stakes decision around       of delayed decision-making, and although most people
what new car to buy can have consequences, they are             trust their employer to a reasonable extent, only 6% chose
nothing compared to the impact decision-making paralysis        their employer as the most trusted source of financial
can have on a future financial position.                        information.

People may say they want choice, but what they really need      Employers have a significant opportunity to play a positive
is direction, or, as behavioural economists would put it, they  role in workplace saving take-up and contributions, but the
would benefit from being nudged in the right direction by       task would be easier if they were more trusted by employees
having the choice presented to them in a certain way.           to give good information and guidance. By providing more
                                                                personalised, detailed and timely advice and information
My money, my future                                             about pensions and savings options, they can overcome this
                                                                barrier, eventually getting their workforce to make better
Alongside the abundance of choice, fear of loss is another      choices and save the correct amount in the correct way.
key factor behind the decision-making paralysis affecting
savers and would-be savers. The research reveals that 60%
of people consider a risk-free savings environment to be
more important than financial return, and 56% would not
consider investing in anything that seems risky.

Considering recent media narratives about Brexit-related
financial uncertainty, and a fluctuating (yet often still
prohibitively expensive) housing market, the sentiment
around risk makes sense. And because risk aversion will
more than likely increase in the coming years rather than

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