Financial illiteracy has always been a problem. In 2020, the FCA found that only 38% of UK adults could be considered to have high levels of financial numeracy – a stat which, according to the CBI, costs the UK up to £25bn per year.
While a lax grip upon the finer details of personal finances may have previously presented only mild inconvenience, the now looming cost of living crisis has created unprecedented urgency when it comes to fully understanding the state of your financial affairs.
This is a widely accepted truth. But, in case anyone missed the memo, in July 2022 the FCA sent out letters to CEOs nationwide to remind them of the financial sector’s renewed responsibility to support its customers during these trying times. The regulator also published the new Consumer Duty Handbook which, for anyone who didn’t have time to read the 161-page document, basically aims to ensure firms “act to deliver good outcomes for retail customers.”
So, in real terms, what do financial services providers actually need to do?
Well, firms will now need a much more thorough understanding of how behavioural biases affect the decision-making of consumers. The Plain Numbers Project has run several trials with companies showcasing how seemingly small changes can massively increase comprehension among customers. Contrary to popular belief, it is possible for firms to communicate numbers and data clearly, fairly and in a way that the majority of their customers can actually understand.
However, these companies still have a long way to go with existing communications; actual comprehension of current communications is low and, on average, only 1 in 4 people are able to show a reasonable level of understanding. Even more concerning is the fact that most people wrongly believe they understand, when they really, really don’t.
In order to increase this level of comprehension amongst consumers, the FCA has provided guidelines for how future communications should look. Implementing an effective process for firms to test their communications is an important first step towards making sure that those communications are clear, fair and non-misleading.
We believe the best way to test this is by recreating the context in which people might encounter the information in real life. By assessing how people comprehend and evaluate what they have read in the moment, we are testing true comprehension.
We also like to test monadically, which means comparing two different sets of communications independently, rather than in sequence. This ensures that we keep everything identical, changing only the elements we are interested in testing. The result? Real world, genuinely valuable results.
So, what does success look like?
Small details create big problems, which is especially evident in the case of pension providers losing contact with thousands of customers every year. Common issues like house moves, divorces or just simply forgetting that accounts have been set up has led to a huge £19.4 billion in unclaimed pensions. While the people owed a portion of this sum have been contacted, the way in which they are informed is often either too complex in its wording and language, or presented in a way that is ‘too good to be true’, meaning that it remains unclaimed.
The ABI asked us to explore the behavioural ‘nudges’ that members could use to encourage lost customers to respond. We created a controlled experiment to isolate the behavioural drivers of response, comparing an anonymised provider letter as our control with four new test versions.
Our redesigned letters led to a 10% increase in reconnection rate, equating to an annual reclamation total of £100 million. Our Communications Guidelines were launched by a Government Minister – Matt Warman MP, Minister for Digital Infrastructure, Department for Digital, Culture, Media and Sport – and received extensive media coverage, including Martin Lewis raising the issue on ITV’s This Morning.
The point being: it is possible for financial services firms to support their customers over the coming months.
You just have to speak their language.