Financial services should put happiness at the heart of how they serve customers.
When it comes to money, what does ‘good’ look like? What does success mean when we think about our relationship to our finances?
One typical response will hinge upon the word ‘more’. Accumulating wealth, buying a bigger house, winning a promotion and a higher salary. Another response could be based around ‘less’. Lower bills, lower charges on financial products, less time spent thinking about personal finances.
But what if we applied a completely different success criteria? What if we judged our relationship with money by whether it makes us happy? To approach that question from a business perspective: what is the problem of money that the financial services industry is solving? Are products and services focused on more, or less – or on happy?
Many financial services companies attempt to help their customers manage their money through financial education. The term financial wellbeing is often used in this context, as a concept that includes being better at managing finances and debt (which I would argue is better described as financial resilience). It also covers many other aspects of money, including our money beliefs, our behavioural biases, and money distractions.
Only when we understand the sources of happiness (short-term) and wellbeing (longer-term) can we really understand the role that money plays in helping to achieve these. We also begin to realize how financial education often starts in the wrong place. A wealth of research about human happiness helps us to better understand the problem of money, and the shortcomings of the financial services industry in helping to solve it.
Money barriers to wellbeing
Making great financial decisions is not something humans are built to do. In many ways, we have only needed to think about our financial futures for the last 40 years or so. In many parts of the world, life expectancy has boomed – but all those extra years are when we are not earning. Families have stopped living together all their lives, so income is needed beyond working age. We now need to make financial plans for the future that we are not equipped to make.
That goes to the very heart of how we think about money. Neuroscience research shows that money decisions are fearful decisions. We make them with our gut (so-called ‘System 1’ thinking) while knowing those decisions will have long-term ramifications. Other research shows that we find it difficult to think about our future selves, and therefore to plan for the future.
We can therefore see that the first part of the problem of money is that we are not equipped to solve it ourselves.
Self worth, not net worth
The second part of the problem relates to the role that money plays as a generator of joy. Of course, money can have a direct part to play in generating wellbeing. Being able to afford a holiday or to spend time with loved ones requires money. Improving financial resilience can reduce money worries. But research also tells us that the extent to which more money makes us happier gets smaller as we have more of it.
The sources of long-term wellbeing are relatively simple, it seems, including living a life with meaning and purpose, and social interactions. Similarly, short-term happiness comes from things that don’t cost money. Being kind to others, being outside, cuddles: none of these require wealth. And yet, one look at magazines, social media and advertising tells us that ‘more’ remains the mantra.
If the first part of our problem with money is that we are not built to make good financial decisions, the second part is that our approach to money is often focused on its accumulation, not on using it to generate wellbeing.
Financial wellbeing education
We need help when it comes to our relationship with money. The help that financial services firms offer, however, tends to come in the form of information, not insight. This might be wealth managers who only talk about investments, or banks who provide education only on being ‘in control of your money’, or on how to take out loans. This is not solving the problem of money.
To help customers to be happier, not just wealthier, financial services need to address issues that relate to the sources of joy. Education on what those sources are would be a great start. Financial wellbeing – defined in the broadest terms – should be the starting point of financial education, not
It is widely accepted that if we teach people about nutrition and its effect on health and energy levels, there is an increased chance that they will eat healthier. It’s not a huge leap to think that a similar approach could work for our relationship to money. If we teach people that buying endless stuff only gives very short-term hits of joy, and that there are better sources of long-term wellbeing, they might manage their money better.
Similarly, if we help people to better connect with their future selves, they are surely more likely to put money into savings products. And if we help people to recognize that some of their money beliefs are not working in their best interests, they may make better financial decisions.
In this way, we could both equip people to make better financial decisions, and help them to understand that a better financial decision is one that is focused on their wellbeing.
If we make achieving wellbeing the success criteria for our relationship with money, we solve the problem of money, and the world will become a happier place. But it is a task that should not be left to us to tackle alone as individual consumers. We should have the full support of the financial services business that serve us.
Chris Budd is author of The Four Cornerstones of Financial Wellbeing (LID Publishing) and co-host of The Financial Wellbeing Podcast.