Ever heard the saying, “Beauty is in the eye of the beholder”? The same can be said for money. Because while money has a determined measure of value, its personal value to individuals is heavily influenced by deeply held beliefs.
Where do these ideas come from, and how do they drive our financial decisions? According to the Psychology of Money feature in the latest Independent Banker magazine, these ideas are shaped during childhood and can impact our relationship with money throughout adulthood.
In the case of a deteriorating economy and rising unemployment, for instance, people instinctively hoard resources—increasing savings and cutting spending.
For millennials, the imprint of those hardships during their formative years may leave a lasting impression that will leave some leery of incurring debt, opting for debit over credit cards for purchases, according to a Bankrate survey.
Beliefs as Financial Drivers
Community bankers can use these insights to better serve customers and help them with their financial goals. For example, knowing that at times of high money anxiety people tend to park funds in checking and savings accounts, despite the returns they can earn in long-term CDs, can help banks prepare for an influx of cash during a future recessionary cycle.
In Davenport, Fla. CenterState Bank is experimenting with a goal-oriented savings account. Instead of paying ongoing interest, the account pays a bonus if the saver hits a certain goal, like saving for a home over a five-year period.
Incentives works, but it’s a fine balance to walk, cautions Stephan Meier, an economics professor and former Federal Reserve economist.
In one of Meier’s studies, a financial institution sent homeowners a legitimate offer to refinance that would enable them to save hundreds of dollars per month. Just half of the solicited consumers jumped at the deal because they didn’t trust the motives of the bank. And when the deal was sweetened with a gift card for those who refinanced, fewer still bit because they were suspicious.
Overall, community banks have an advantage because they are more likely to be trusted. By using their arsenal of tools (such as education, incentives and support services) to help steer people away from flawed decisions towards better financial choices, community banks may be able to further raise their value in the eyes of their customers.