How our hardwiring affects our finances

By FMB on 

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I’m no psychologist, but part of my job when Marketing FMB is to think about what messages will hit home when talking to clients and potential new clients. I’ve just been listening to a webinar by Dr Thomas Mather from the Behavioural Insights Team at Aegon Cofunds to learn more about how people make decisions about their finances.

95% of our decision making comes from intuition and instinct, the automatic type of thinking that comes to us quickly. The other 5% comes from the rational part of the brain that requires logical thinking and decision making and is much slower and takes more effort.

Think about this in relation to everyday decisions:-

Should I have another biscuit?
Do I trust this person?
Should I sell those shares?

Sometimes we need to trust our instinct when we have to make snap decisions but it can also lead us to make irrational decisions for example when processing danger and risk.

What would a rational person do? What do people actually do? I would like to think our communications help people make better, more rational choices with their money.

Investors need to recognise their own internal biases. Did you know emotionally you will feel the impact of a loss twice as much as that of a gain? Our focus is naturally biased towards the present, so we must train ourselves to think of the bigger picture not just the here and now. The human brain is hardwired to want ACTION, so we must sit on our hands when we know rationally the best thing is to do nothing.

Using behavioural psychology is a powerful tool and it can be used for ill. The recent Campaign by failed London Capital Finance, hooked unwitting investors with an extremely powerful Facebook advert that utilised very trick in the book. Many people lost thousands.

Ruth Power, Director of Business Development

Our aim at FMB is to use these tools for good, to encourage and “nudge” people in the right direction and achieve the best outcomes for all our existing clients and hopefully some new ones too, because we know how powerful good financial planning can be.

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