A deeper understanding of the specific behavioural characteristics of individual employees can support efforts to improve their financial wellbeing. That way, interventions have a better chance of connecting with individuals’ intrinsic motivations in a way that can actually start to bring about a change of mindset. DOWNLOAD A PDF OF THE SUPPLEMENT HERE
That was what Dr. Tom Mathar, who leads Aegon’s Centre for Behavioural Research, told delegates at a round table on The Psychology of Financial Wellbeing held by Corporate Adviser last month.
Mathar pointed to the Number 10 Behavioural Insights Team’s four principles for changing behaviour as a starting point for understanding how to achieve results.
“Make it easy, make it attractive, make it social and make it timely. Take auto-enrolment. That has made it easy to get involved in pensions and difficult to opt out. It has been made attractive, and that speaks to intrinsic motivations. The social dimension is that we are far more likely to do something if we know that others are doing it as well. So we communicate what we know others are doing. And the timely point is about understanding when to launch an intervention or put forward a nudge. Something we see in our data as well is that people whose age ends with a nine are far more likely to engage with pensions and savings than those with an age does that not end with a nine,” he said.
Delegates agreed that data was the key to better insights and more effective change strategies, and that benchmarking a workforce’s wellbeing before and after interventions are made was key to understanding success.
Isio principal consultant, DC, Simon Davidge said: “The real key to this from an employer’s point of view, is the breadth of data they’ve got access to through a flex platform, and how that can give them more insight into basic issues such as someone who’s paying higher contributions into their pension and childcare benefits, but who is really low on life assurance. Looking at those patterns of interconnection
between benefit take-up, it’s quite low at the minute. But you could quite easily track that to see where people are engaging, communicate to those and then see if their behaviour is changing. That will give real evidence of whether what you are doing is working or not working. The data holds all the secrets.”
Barnett Waddingham partner Andy Parker raised the worry that individuals will face a lot of chopping and changing of benefits and financial wellbeing communication as they pass through their career. He said: “We’ve all naturally assumed that this is a workplace issue. So if I have 11 different workplaces during my lifetime and I have a period where I’m not in a workplace or I’m in my own self-employed workplace, how do I bring it altogether? How do I get consistency in the approach or am I going to have to deal with 11 different ways of doing things and none of them join up? I don’t hear government saying we’re going to take this by the horns and do something. It is all pushed back to the employer. Really, I need something that will go all the way through my lifetime, not something that’s going to change every time I change my job.”
Parker added that all employees are very different in their pension accrual history, with some have predominantly defined benefit benefits while others are more tilted towards DC, and others still with little at all.
“So we need to be clear that it definitely isn’t a case of one size fits all,” he added.
Aegon Workplace Investing managing director Linda Whorlow said her organisation has developed research that helped quantify not only the financial wellbeing of workforces within companies, but also the mindset of employees and their propensity to engage with their future self, and to monitor this over time.
Measuring mindset
Whorlow said: “A major study that we’ve carried out over the last 12 months has led us to create a financial wellbeing index. This looks at not just the budgetary side, but mindset measurement as well. We’ll be developing that into a tool. We can create data at a corporate, client, industry and regional level and look at different sectors to help give the employer the insights to help them move that step forward towards what’s going to actually work with advisers and employers, to really drive better outcomes.”
Mathar added: “This work that we’ve done really sets out that financial wellbeing is about those two things. One is the money side. The other is the mindset side – what gives us joy and purpose, how far does our mental time horizon stretch? Are we intrinsically motivated or are we bogged down by social comparisons? And financial literacy is important, but so too is the behavioural side – how we conduct ourselves, for example, in times of crisis, be it crises in the markets or a personal crisis.
“And those two sides, the money side and the mindset side are brought together in this index. Originally it was a big piece of research, but that’s now been distilled and made easy and very comprehensible so that employers can use a set of questions to understand the profile, both of the money side and the mindset side of the workforce, to help inform decisions on what sort of campaigns to carry out. This is something in the pipeline being launched in Q3 2021. It will offer a great opportunity for employers to really get closer to their staff and understand their specific needs and requirements, and how to address them.”
Davidge said applying more science to financial wellbeing communications made sense. He said: “It seems like the answer at the moment is throw loads of stuff at the problem and see what sticks, with little thinking about why. Some rationale as to why we’re doing what we are doing for employees is needed.”
Financial couch to 5K
Davidge suggested a bite-sized approach to success helped with goal-setting. He said: “I like the idea of the financial equivalent of Couch to 5K – a concept that feels like a goal that can be reached with a bit of work. If we could crack that and get a concept of something that’s easily relatable to give people goals and motivation along the way, that would be the key.”
LCP senior consultant Heidi Allan agreed: “We always try and break goals down because we know how demotivating it can be if, for example, you’re saving for a deposit on a house or for a wedding and you’ve got this big number that you’re trying to reach, and it’s really easy to fall off the wagon because it seems so far away. And that’s one of the challenges with retirement for a lot of people. But actually,
if we break that down into smaller, manageable chunks, and easier for them to see, it could work.”
Falvey said: “We’re working trying to identify different personality types. Because if we can do that then people might be able to see why they do the things they do. And giving give them little easy tricks and things to change may help them get to their goals.”
Spender, slender or defender
Falvey said Aon’s thinking in this area was coming from Australian colleagues, who divide people into three personality buckets.
“Either you’re a spender, a defender, or a slender. We’re all defenders in this session as we understand our benefits and know what to do. Slenders are the really hard ones because they oscillate between the two. The science behind this says that people are in this mindset by the time they’re about seven years old. It’s a bit genetics and it’s a bit of what’s happened in the family – and recognising it helps you to change,” said Falvey.
Falvey added that family experiences of money shortage when growing up can shape attitudes to saving.
Mathar said: “We definitely need to segment people. Employers need to gain an understanding of their employees emotionally, socially and behaviourally, because that informs what they’re likely to do. We already do that on a very basic level with communications. It’s pointless to send out information on how to access pensions to a 25-year-old.”
Behavioural segmentation
Mathar said that focusing on ‘personality type’ and ‘psychological profiling’ suggested deep ingrained personality types that could not be changed, whereas ‘behavioural’ segmentation was a more accurate description of how individuals could be communicated with.
“For me, it is more behavioural segmentation rather than personality segmentation,” he said. “And it is also important to recognise that the way we behave varies with context as well. Some people are bad with money in some contexts but good in others.”
So should individual pension scheme members be segmented on the basis of their behavioural characteristics and labelled as needing particular communications tailored to their behavioural type?
“We do that already with simple variables like age and wealth,” said Mathar. “If we see someone aged 55 who has £300,000, we would implicitly assume there’s another psychographic profile for someone who’s 55 and has only £125,000, or someone who is 65 and only has £30,000. It’s unfair to draw too many conclusions but it is a useful starting point. And we look at the hard data of how people behave – activation rates, contribution reviews, switch rates, et cetera, and that informs how we offer services.
“For example, Aegon Assist, our guidance service, uses psychographic, social demographic and behavioural assessments that inform the framing, anchoring, checklists and defaults. But I wouldn’t call it psychological or psychographic segmentation – it’s a variety of data points that I would more summarise as behavioural.”
Allan gave an optimistic summary of where the current focus on financial wellbeing could take the nation. She said: “Hopefully if some of these interventions that people experience through the workplace are addressing behaviours, knowledge, understanding, attitudes, ethos, mindset, all of these things, hopefully as people move organisations, whatever support is in place in that new workplace will further cement that mindset, behaviour, motivation that is needed.
“I’m encouraged by how much mental health support and awareness has grown in the last five years. I’d really like to think we can achieve the same trajectory with financial health going forward.”
Whorlow said: “We have a consensus that this isn’t about budget planners and tools. I’m hopeful for us as an industry. It’s good to hear from you, leading EBCs in the UK, that we’re on to something here in terms of how we progressing, how we interact with clients and how we can get them to help change that behaviour.”