Money is essential but most people are still reluctant to learn how to handle it via financial, investment planning Predictability works for this reason. A product with a specific rate of return, delivered over time, like the government saving schemes and bank fixed deposits, become easier for investors to trust. They know what to expect and they see those expectations fructify
Uma Shashikant
Chairperson, Centre for Investment Education and Learning
So many people aren’t interested in financial literacy, said my friend. While everyone understands that they have to manage money anyway, they still don’t feel motivated to learn the principles. This paradox has bothered me as a financial educator, but I guess I understand where the roadblock lies. We are so short of trust-enforcing behaviours in the financial arena that it makes many wary to step in.
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Talking straight is the top trust-creating behaviour. ‘What you see is what you get’ is a gold standard in trust. You book a holiday after seeing the pictures of a place, but when you get there, you find it small and cramped; the pictures were just clever photography. You would not want to use the service again. It could be an exception, but you have a lived experience that you will stick by.
Spinning a story or positioning a product with the light shining on its merits alone, posturing as if they are thinking of your well-being, manipulating as if the product is available only to a select few are all part of the selling processes of goods and services. These selling tricks are even more rampant in financial products and services, where the seller’s claim can’t be matched to a product’s photograph. However many happy families one may feature, savers may remain unimpressed. Imagine the picture of a gooey good chocolate, or shiny, lustrous hair flowing down the back of a beautiful model. Financial products fail even more trying to sell their stories.
We love our successes. We can’t stop telling those stories. Stocks get the most attention in bull market cycles. Cards sell on the basis of discussions about rewards. A winning performance enables a fund to get more new investors. A premium listing perks up the IPO markets. However, the stage goes empty when things fail. Market cycles are part of life for a long-term investor. The first crash of a bull market can unnerve most. They need support when faced with such an adversity. Investors feel abandoned and alone when things don’t work out as expected. But the sellers have vanished by then.
It is easy to pitch successes as stemming from great skill and expertise. This can become counter-productive when things don’t work out as predicted. When focus is moved from product to process, this drumbeat about being mighty and successful gets toned down, and consistent investor engagement becomes possible. The success story of mutual fund SIPs as the most sought-after by simple investors is an illustration of this idea. The emphasis is on disciplined investing. After a few cycles, investors see the benefits and stay put.
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Users of financial products can get stuck with their limitations. In the good old days, before debit and credit cards and ATM, people feared not having money during an emergency. They feared that the bank would be closed after working hours, when they needed the money. Banks evoke a very high level of trust because of their ability to build on the basis of feedback, and to correct and enhance their services as they go along. Today, trips to the bank branches have almost been eliminated. Improvising, addressing concerns, demonstrating response to feedback are all trust-creating behaviours. For all our laments about financial literacy, everyone uses banking services.
To invoke trust, there must be a clear articulation of what to expect and the willingness to be held accountable. Households find accountability a bit irksome and that excludes other members who may be interested in financial management. The idiosyncrasy that characterises financial decisions can tire members of the household and they may abdicate involvement in financial affairs. In a centralised money management system, with one person making all the financial decisions, others in the household do not know if there is enough. Or they may cease to care because there is no transparency or accountability. There are just demands and disappointments, when the trust system fails.
Establishing a track record, and evidence of consistent behaviour are great trust-building behaviours. In the financial world, people tend to be too quick to trust a semblance of performance, only to be disappointed soon after. If there is an evidence of performance that is reliably and publicly visible, people begin to take notice. Predictability works for this reason. A product with a specific rate of return, delivered over time, like the government saving schemes and bank fixed deposits, become easier for investors to trust. They know what to expect and they see those expectations fructify. It took the mutual fund industry several years to establish that a diversified portfolio managed with discipline can deliver consistent returns. The industry has high standards for transparency and track record since these create trust.
The struggle with distribution of financial products is often associated with trust-destroying behaviours of selling agents. Rampant soliciting, which pushes a product highlighting the positives alone, has hurt many investors, who gullibly trusted relationship managers, agents and distributors, and bought the wrong financial products. The lack of accountability for misselling financial products is still an unresolved issue despite several regulatory and institutional responses.
It is not easy to create trust, whether in the financial world or outside of it. It calls for a conviction about doing right by others. There is a lot of work involved, to be honest, straightforward, accountable, transparent, competent and willing to admit mistakes, and correct them as they go along. We all accommodate and work with the imperfect world and craft our responses based on how much we can trust what we encounter. Avoidance is the easiest response, and many tend to choose it while dealing with a complex financial world that is tough to trust.
THE AUTHOR IS CHAIRPERSON, CENTRE FOR INVESTMENT EDUCATION AND LEARNING
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This story originally appeared on: India Times - Author:Faqs of Insurances
