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Economics in 3D

Towards a More Realistic View of Household Decisions

Written by Mark Cliffe, Chief Economist ING

Individual consumers are typically ignored by economists in the banking industry. They concentrate instead on macro-economic forecasting. Looking at national and international economic developments, bank economists give generic advice on issues such as interest rates and exchange rates. The goal is to help clients make better financial decisions. To the extent that their advice is tailored to individual needs, the focus is largely on corporate and institutional clients. Only a sub-set of retail clients with substantial investments typically receive their direct support.

However, economists at ING have for several years been developing analysis and content designed to help retail customers of all kinds. In so doing, we seek to support ING’s customer centric purpose of “empowering people to stay a step ahead in life and business”. Our international consumer economics team, via its website eZonomics.com and ING’s International Surveys (IIS), supports local financial education initiatives and produces customer-centric content, such as articles, tips and tools. Locally, we support initiatives such as Financieel Fit (Financially Fit) in the Netherlands. Our daily internet poll on consumer opinions on our retail banking website has long been the biggest poll in the country.

There can be little doubt that the need for such support is growing. People face fresh challenges and opportunities in making decisions. The financial crisis has accelerated the shift towards individuals taking more responsibility for their financial affairs. Rapid technological change, not least in the form of digital and mobile technologies, is changing how people make decisions and transact. Meanwhile, applying advanced analytics to Big Data promises to provide more valuable insights into consumers’ finances.

Economists, inside and outside banking, have been slow to acknowledge that changing consumer behaviour may have significant effects on macroeconomic performance. Just as the state of the economic environment affects individuals, the changing behaviour of individuals can affect the economy as a whole. Macro affects micro and micro affects macro. This calls for a more holistic approach.

Recognising this, and to coincide with the launch of the Think Forward Initiative, ING has decided to step up its research into consumer economics. The first step is to deepen our understanding of the impact of economic, social, political, technological change. We intend to examine the effects on particular socioeconomic segments. The second step is to analyse how individual behaviour is changing. What are the challenges and opportunities that people face? The third, and most important, step is to address the question: how can we help people make better financial decisions?

Seeking ways to improve people’s financial decision-making will need not just combining macro and micro-economics. It will take us beyond economics, to the tools of other disciplines. Helping people to learn or avoid mistakes will call upon psychological and educational insights. Addressing social influences on decisions will pull in other social sciences such as sociology and social anthropology.

So macroeconomics is not enough. The goal of this introductory report is to show why a richer understanding of consumer finances needs a more multi-disciplinary approach.