Are better financial habits a simple reminder away?
Making good financial decisions can sometimes be as difficult as breaking bad ones.
Fortunately, sometimes all it takes to make smarter choices when it comes to your money is a timely reminder.
The Commonwealth Bank’s chief data and analytics officer Dr Andrew McMullan said that behavioural science suggests that consumers see unexpected or windfall gains as different from our regular income.
“We tend to mentally put these funds into a ‘free money’ category which means we’re more likely to spend these funds without considering opportunity costs,” he said.
Citing recent research done by the bank’s financial wellbeing team, he said that well-timed nudges could make all the difference when it comes to how consumers allocate their money.
As part of its research into financial behaviours, CBA ran a trial program where it prompted customers who incurred credit card interest to think about how they planned to use their annual tax refund.
Accompanied by information about the benefits of reducing their debt, the bank found that these nudges often resulted in a shift around the individual spending behaviours of consumers.
All told, CBA found that customers who engaged with the credit card repayment nudges tended to repay an average of $541 more in the month following their tax refund.
Pointing to the success of these trials, Dr McMullan said that if the credit card nudge was rolled out to all eligible customers, it could result in more than $4 million in “catch-up” credit card repayments being made each year.
“The results highlight that proactively contacting customers in a targeted manner and at the right time can help them to follow through on their intentions and make meaningful progress towards their goals,” he said.
Dr McMullan said that tax time is an ideal opportunity for many Australians to accelerate their financial goals, “whether that is getting back on track with their debts, saving for a rainy day, or investing”.
Speaking to nestegg earlier this year, CBA head of behavioural economics Will Mailer said much the same. He noted that an annual tax refund is often one of the biggest single cash deposits a typical household receives in a given year.
Referencing a recent study conducted by the University of Chicago, Mr Mailer explained that individuals often interpret “extra” money as more easily spendable than their own hard-earned income.
However, researchers also found that individuals given extra cash as a rebate or refund saved the entire sum at a far higher proportion than those given it as a bonus.
“As such, an end of financial year tax refund is a golden opportunity to progress on a goal, recover from a setback, or build up a buffer for the future,” he said.
Feel free to contact us at 08 8211 7180 or at info@centramoney.com.au to find out how we can help you reach your financial goals.
Article courtesy of Nestegg.