Do you suffer from personal finance paralysis? Delaying decisions cost each of us £1,600 in 2018 – and it’s thanks to too much choice
- Study shows delaying decisions collectively cost Britons £1,598 each this year
- Amount of choice on the market means consumers get easily overwhelmed
- Failure to switch or consolidate debt costs households dear
Grace Gausden For This Is Money
Nearly two in five Britons have experienced personal finance paralysis – the fear of making a bad personal finance decision – meaning it is put-off or often, not made at all, research suggests.
Delaying or not making personal finance decisions when it comes to credit cards, personal loans and mortgages cost a typical person £1,598 this year.
On average, it takes 21 minutes before someone chooses to give up when trying to make a decision about their personal finance, the study by Freedom Finance, an online broker, and Professor David Hillier, an economist at Strathclyde Business School, shows.
There are too many choices with regards to personal finance, which is why people put them off
The cost of personal finance indecision was calculated by obtaining national figures of individuals and households with a mortgage, personal loan and/or credit card.
It analysed the percentage of consumers who had not switched a mortgage, personal loan and/or credit card in the last 12 months and compared this with available statistics on average market borrowing rates.
One of the main reasons that so many people are indecisive is the sheer number of products on offer, the research concludes.
This means that people can easily become overwhelmed and are unable to spot what is the best option for them.
Freedom Finance and Censuswide polled 2,034 adults in September and Freedom Finance and YouGov also polled 2,029 in October to obtain the results.
It found that a third of people said they don’t like to make important personal finance decisions as it makes them feel overwhelmed and anxious.
The research doesn’t mention other personal finance decisions many may dwell on, such as sorting their pension, starting the savings habit or switching utility providers – so the figure is likely to be even higher.
A further 30 per cent said they leave consolidating finances at the bottom of their to-do lists.
The main outcome from the research is the discovery that people want their personal finance providers to give them clarity, not just choice.
Fear: More than a third of people experience personal finance paralysis across the country
Brian Brodie, chief executive of Freedom Finance, said: ‘Providers of personal loans, mortgages and credit cards have a responsibility to ensure that the options are simple and clear for their customers, so that borrowers can make well-informed decisions.’
Freedom Finance found that failing to switch or consolidate to a more favourable credit card rate costs each adult on average £432 this year.
Additionally, a failure to switch or consolidate personal loans also cost each adult £421 in 2018, whilst those on a non-fixed rate mortgage lost £745 in the last year by not opting for a better rate.
It believes that the industry should help customers tackle personal finance paralysis by giving clearer options, as well as relevant guidance and education that will give people the opportunity to make well-informed personal finance decisions.
David Hillier, professor of finance and executive dean of Strathclyde Business School, said: ‘Many operate under the assumption that making no decision is preferable to making the “wrong” decision.
‘But by failing to pull the trigger, consumers lose thousands of pounds. The scale of personal finance indecision and its impact on households and the economy is a cause for concern.
‘As interest rates have the potential to rise in 2019, customers stand to lose even more money if decisions aren’t carefully considered.’
‘App-athy’ for Britons who leave banking apps dormant
Data from Wealthify, the online investment service, has found that there are 11.2million downloaded money management apps that are unused and lying dormant on mobiles and tablets across the country.
Research from the service found that 93 per cent of financial apps that are downloaded by the public are banking apps.
However, collectively, only 15 per cent of the population are using apps to help them fill up their savings, investments or retirement pots – even though these are often free to use and designed to make the use of them simple and effortless.
This suggests that Britons are not taking advantage of the potential benefits that can be provided by using finance apps, meaning they could be missing out on saving hundreds of pounds.
Michelle Pearce-Burke, chief information officer and co-founder of Wealthify, said: ‘Despite the digital revolution and a wealth of free-to-download finance apps available to help people save and invest, it is a real shame so many of these apps sit unused on people’s phones.
‘The fact that so many are downloading these apps in the first place shows a clear will amongst people to take control of finances. Making the benefits to the user clearer should help people’s perception of the apps’ usefulness.’