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Behavioral Finance - US - March 2011

In 2006, Mintel published a report about Behavioral Finance and described how financial decisions and behaviors are not always rational. Rather, cognitive biases and emotional distortions often influence consumer financial decisions. Since that time, the world has experienced a massive global financial crisis, from which we are still struggling to emerge. With all the knowledge about economics and behavior, it comes as a surprise that we are not able to avoid repeating the same mistakes that lead us to create financial bubbles that eventually burst and result in a financial collapse.

This report updates the 2006 Mintel report in light of changing economic conditions, and presents new insights that have emerged from the growing field of behavioral economics, as well as new ways in which these insights have been applied to marketing financial products and services, as well as strategic decisions that are made within the industry.

Some of the practical implications for the financial services industry which are discussed in this report include:

  • How people choose among the myriad array of options for insurance coverage
  • Why they gravitate toward particular savings vehicles
  • How consumers choose to finance spending for big-ticket items, as well as everyday expenses
  • What types of information consumers are most likely to pay attention to, and what types of messages are likely to have the greatest impact on financial decisions
  • How marketers and financial executives are impacted by the same cognitive biases as their customers, which can potentially influence everything from risk management to product development

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Table of contents

  1. Scope and Themes

      • What you need to know
        • Data sources
          • Consumer survey data
            • VMS
              • Abbreviations and terms
                • Abbreviations
                  • Terms
                    • Companies mentioned in this report:
                    • Executive Summary

                      • Industry overview
                        • Behavioral Finance – the basics
                          • Innovations and innovators
                            • Marketing strategies
                              • The consumer
                              • Insights and Opportunities

                                  • Key points
                                  • Inspire Insights

                                      • Inspire Trend: “Stability”
                                      • Behavioral Finance – The Basics

                                        • Key points
                                          • History
                                            • What does Behavioral Finance tell us about why people choose certain financial products?
                                              • People want a sure bet
                                                • Figure 1: Attitudes about spending and saving, by age, January 2011
                                                • Figure 2: How personal savings is invested, by age, November 2010
                                              • Paradox—People lose out because they’re afraid to lose out
                                                • Why it’s so hard buy low and sell high
                                                  • We’re all better than average
                                                    • Avoiding the truth
                                                      • Familiarity breeds liking not contempt
                                                        • When a bargain is not a bargain
                                                          • Mad money
                                                            • Know when to fold them
                                                              • Beating the market
                                                                • Does Behavioral Finance help beat the market?
                                                                  • Benefits of professional advice
                                                                    • Designing better retirement plans
                                                                      • Setting deadlines
                                                                        • Framing choices
                                                                          • Neuro-economics is gaining in credibility
                                                                          • Marketing – How Behavioral Finance Can Contribute

                                                                            • Key points
                                                                              • Sometimes more is less
                                                                                • Figure 3: Frequency of applying for a new credit card, by age, November 2010 and February 2006
                                                                              • How we cope with information overload
                                                                                • What influences our buying decisions
                                                                                  • Ads for bull and bear markets
                                                                                    • Improving direct mail response rates
                                                                                      • Keeping it simple
                                                                                        • Framing the comparison
                                                                                          • When promotions backfire
                                                                                            • How to Apologize
                                                                                              • Impact of advertising on consumer choice
                                                                                                • Advertising and emotions
                                                                                                  • Figure 4: Perceptions of financial security, by income, 2010
                                                                                                  • Figure 5: Perceptions of financial security, by income, 2005
                                                                                                • Making financial subjects interesting
                                                                                                  • Metaphor theory
                                                                                                    • Avoiding loss
                                                                                                      • Understanding anchoring in pricing strategy
                                                                                                      • Innovations and Innovators

                                                                                                        • Key points
                                                                                                          • Lotteries—The Long Odds
                                                                                                            • The lure of winning big can help people save
                                                                                                              • Gamification
                                                                                                                • Vibrating wallets prevent overspending
                                                                                                                  • Using credit cards as mental accounts
                                                                                                                    • Winning back investors’ trust
                                                                                                                      • Retirement planning
                                                                                                                      • Marketing Strategies

                                                                                                                          • Overload
                                                                                                                            • Figure 6: GEICO direct mail advertisement, February 2011
                                                                                                                            • Figure 7: Kaiser Permanente direct mail advertisement, February 2011
                                                                                                                            • Figure 8: Capital One direct mail advertisement, February 2011
                                                                                                                            • Figure 9: Allstate “Mayhem” online advertisement, February 2011
                                                                                                                          • Playing the odds instead of planning
                                                                                                                            • Figure 10: E*Trade, Frank tries to scratch his way to retirement, 2010
                                                                                                                          • Avoiding disturbing information
                                                                                                                            • Figure 11: AXA Equitable, bumpy airplane ride, gorilla recommends annuity, 2008
                                                                                                                          • Empowering investors with confidence
                                                                                                                            • Figure 12: Scottrade, Girl gives coach financial advice through soccer game plan, 2010
                                                                                                                          • Keep it simple
                                                                                                                            • Figure 13: Fidelity, Man stacks baby rings fast, 2006
                                                                                                                          • Imagining our future selves
                                                                                                                            • Figure 14: Raymond James, Emily Skinner rides a bike, old woman typing, playing ping pong, 2010
                                                                                                                        • The Consumer

                                                                                                                          • Key points
                                                                                                                            • The ups and downs of mental accounting
                                                                                                                              • Using mental accounting to spur savings
                                                                                                                                • Giving Uncle Sam an interest-free loan
                                                                                                                                    • Figure 15: Whether received tax refund of $500+, by HH income, November 2010
                                                                                                                                    • Figure 16: Tax refunds, by gender and income, February 2006
                                                                                                                                    • Figure 17: Whether received tax refund of $500+, by age, November 2010
                                                                                                                                    • Figure 18: Tax refunds, by age of respondent, February 2006
                                                                                                                                    • Figure 19: Primary use of tax refund, by age, November 2010
                                                                                                                                    • Figure 20: Use of tax refunds, by age, February 2006
                                                                                                                                  • Buying insurance
                                                                                                                                      • Figure 21: Frequency of shopping for auto insurance, November 2010
                                                                                                                                    • Overcoming the status quo
                                                                                                                                        • Figure 22: Attitudes about the insurance purchase process, November 2010
                                                                                                                                        • Figure 23: Attitudes about the insurance purchase process, by type of insurance purchase, November 2010
                                                                                                                                      • How insurance companies can use Behavioral Finance
                                                                                                                                        • Many people are not comfortable discussing financial matters
                                                                                                                                          • Figure 24: Attitudes toward financial privacy, November 2010
                                                                                                                                        • Americans have a love-hate relationship with credit
                                                                                                                                            • Figure 25: Median Debt Stress Index Score, 2004, 2008 and Nov. 2009
                                                                                                                                          • Spend to save
                                                                                                                                              • Figure 26: Attitudes about debt, summer 2010
                                                                                                                                            • The future self and annuities
                                                                                                                                                • Figure 27: Attitudes toward the “future self,” November 2010
                                                                                                                                              • What has changed as a result of the financial crisis
                                                                                                                                                  • Figure 28: Attitudes about personal finances and spending, November 2010
                                                                                                                                              • Cluster Analysis

                                                                                                                                                  • Grindstones
                                                                                                                                                    • Demographics
                                                                                                                                                      • Characteristics
                                                                                                                                                        • Opportunity
                                                                                                                                                          • Debtors
                                                                                                                                                            • Demographics
                                                                                                                                                              • Characteristics
                                                                                                                                                                • Opportunity
                                                                                                                                                                  • Confidents
                                                                                                                                                                    • Demographics
                                                                                                                                                                      • Characteristics
                                                                                                                                                                        • Opportunity
                                                                                                                                                                          • Cluster characteristics
                                                                                                                                                                            • Figure 29: Behavioral finance clusters, December 2010
                                                                                                                                                                            • Figure 30: Saving behavior by behavioral finance clusters, December 2010
                                                                                                                                                                            • Figure 31: Credit card use by behavioral finance clusters, December 2010
                                                                                                                                                                            • Figure 32: Attitudes about the economy and finance by behavioral finance clusters, December 2010
                                                                                                                                                                          • Cluster demographics
                                                                                                                                                                            • Figure 33: Behavioral finance clusters, by gender, December 2010
                                                                                                                                                                            • Figure 34: Behavioral finance clusters, by age group, December 2010
                                                                                                                                                                            • Figure 35: Behavioral finance clusters, by household income, December 2010
                                                                                                                                                                            • Figure 36: Behavioral finance clusters, by race/Hispanic origin, December 2010
                                                                                                                                                                          • Cluster methodology
                                                                                                                                                                          • Behavioral Finance – The Marketer’s Checklist

                                                                                                                                                                            • Sources and Suggested Reading

                                                                                                                                                                              • Appendix—Trade Associations

                                                                                                                                                                                Companies Covered

                                                                                                                                                                                • American Express Company (The)
                                                                                                                                                                                • American Finance Association
                                                                                                                                                                                • ARG Financial Services
                                                                                                                                                                                • AXA (USA)
                                                                                                                                                                                • Bank of America Corporation
                                                                                                                                                                                • Consumer Bankers Association
                                                                                                                                                                                • Credit Union National Association
                                                                                                                                                                                • Direct Marketing Association, Inc.
                                                                                                                                                                                • Employee Benefit Research Institute
                                                                                                                                                                                • Fidelity Investment Services Limited
                                                                                                                                                                                • Financial Services Authority (The)
                                                                                                                                                                                • Independent Community Bankers of America
                                                                                                                                                                                • LIMRA International
                                                                                                                                                                                • MasterCard Incorporated
                                                                                                                                                                                • McDonald's Corporation
                                                                                                                                                                                • Merrill Lynch & Co. Inc
                                                                                                                                                                                • Starbucks Corporation
                                                                                                                                                                                • The American Financial Services Association
                                                                                                                                                                                • The American Savings Education Council
                                                                                                                                                                                • Wells Fargo & Company

                                                                                                                                                                                Behavioral Finance - US - March 2011

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