With the best intentions, many people turn to Google when trying to improve their financial health. And five minutes later, they give up. Why? Because searching for “how to improve financial health” delivers no less than 83 ‘steps’ to do so on the first page of the search results. Any would-be financial mogul has just been bombarded with so much information – some of it simple, some of it complex, and some of it conflicting – that they’re too overwhelmed to even start.
Down the rabbit hole
Though there’s an abundance of information available on any given topic today, the financial services sector is particularly prone to information overload. Financial products are often complex and can be overwhelming for consumers who aren’t financially literate or astute.
On top of that, the conventional view that the more choices we have, the more likely we are to find the best solution, is a fallacy. Research shows that if there are too many options, people are less likely to buy a product. More options require more time and effort to process, causing processing overload and leading to inertia or procrastination. Even if the more adamant consumer pushes through, they’re more likely to have buyer’s remorse – their high expectations, given the variety of options, leaves them feeling less satisfied than customers who had a limited selection.
Coming up for air
The answer? Limit the flow of information. As Voltaire said: Best is the enemy of good. By trying to learn everything about financial health, you’re setting yourself up for failure. So, limit yourself to two or three choices. Do some basic research, but stop there. It’s much better to get started somewhere and learn and adjust as you go along, than to aim for perfection and never achieve anything.
Secondly, set a deadline. Decide to read up for an hour or so each night and to then make your decision within a week. This can help you cut down the options.
Lastly, talk to someone in person. It doesn’t have to be a financial advisor, but it should be someone who has some experience and seems to be financially healthy. Ask them to guide you on how to get started.
Information overload is, of course, not the only reason people don’t take control of their financial health. Once they have the right information and have set a goal, the so-called intention-action gap is the next big canyon they must traverse. Everyone has experienced the destructive cycle of setting a goal at New Year and not following through – and this applies to finances too. Sometimes, the reason is our tendency to favour immediate gratification over long-term rewards. Other times, the goal was simply too ambitious.
The best way to overcome the first is to use a so-called commitment device. In the world of finances, this could be a savings account that disallows withdrawals or imposes fees for early withdrawal, or a debit order that collects savings or retirement funds on payday.
For the over-achievers, remember to keep things simple. Aim for smaller goals – don’t overspend, take out insurance, aim to beat inflation, and continuously improve your skills – and trust that, in the long-term, these small steps will reap big rewards.
By Sakhile Mabena, CEO of OFIN