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Feeling safe and in control: how privacy cues impact financial decisions

by Joris Demmers, Benedict Dellaert & Kristian Rotaru
Posted on June 30, 2020

Many people have trouble understanding the consequences of their financial choices, leading to poor choices about how to manage their money. Online support tools, such as retirement planners or budgeting tools, can help. With the rise of machine learning and artificial intelligence in financial services, the support and advice provided by online tools are getting more personally tailored to customers’ financial situations. For example, digital financial adviser chatbot MyEva provides customers with personalized advice on pensions, savings and investments.

But there is a catch. Apps such as MyEva need large amounts of customer data to give personalized advice. Not surprisingly, many people are concerned about their privacy in relation to online services that use artificial intelligence. Such privacy concerns pose a potential challenge for the quality of online support tools, as customers may be reluctant to provide the accurate and detailed information input that is needed to give good advice. As the saying goes: “Garbage in, garbage out”.

To better understand the scope of this problem, we set out to investigate the link between privacy cues and the way people make financial decisions using online support tools.


Privacy and consumer engagement

In October 2019, we asked 342 undergraduate students – a group of consumers typically on a tight budget – to use an online savings calculator to plan for a personal savings goal (Figure 1). This required them to fill out detailed information about their personal financial situation. Half of the students was told that their input would be handled strictly confidentially and that their data would not be stored; the other half that their data would be stored with a personal identifier and might be used later (Figure 2).


Figure 1Figure 1: An online savings calculator to plan for a personal savings goal.


Figure 2

Figure 2Figure 2: In study 1, half of the students was told that their input would be handled strictly confidentially and that their data would not be stored (top). The other half of the students was told that their data would be stored with a personal identifier and might be used later (bottom).

We found that students in the first group engaged more with the savings calculator, providing more input and adjusting parameters to plan their savings goal. Compared to the second group, they also reported having provided more accurate input, higher feelings of being in control, and more trust in the advice given by the tool. Interestingly, in a follow-up task, participants in the first group were also willing to make higher risk investment choices. We decided to follow up on these findings in our second study.

Less risky choices after a privacy breach

In February 2020, we exposed 518 consumers – members of an online consumer panel who were preselected on having experience with financial investing – to an even stronger privacy cue: a privacy breach of their personal data with their primary bank (Figure 3). The results showed that the group that read about the privacy breach was willing to take substantially lower investment risks compared to a control group that was not exposed to a privacy breach.

This outcome is particularly interesting because, rationally, the risk of investment choices has little to do with a privacy breach. Our data suggests that this may be caused by a mental process in which the negative emotions resulting from the privacy breach spilled over to consumers’ tolerance for risks, making them more averse to risky investment options.


Figure 3

Figure 3: In study 2, one group of consumers read about a privacy breach of their personal data with their primary bank (top), whereas the control group was not exposed to a privacy breach (bottom).

Take-aways so far

These findings show that privacy cues impact consumers’ financial decisions in two ways. Firstly, there is the direct effect that feelings of privacy have on consumers’ willingness to provide accurate and reliable input. As this input determines the quality of the outcomes of financial support tools, it is important to make customers feel safe enough to provide accurate input. One way to do this is to locate financial support tools on personal pages of a website (e.g. https://my.bank.com instead of https://bank.com), making customers feel more at ease and in control.

However, our research shows that these positive feelings may also cause customers to take more risky financial decisions. This effect may be at odds with what many online financial support tools are trying to achieve, as riskier financial choices are not always the best ones.

The link between privacy and financial decisions is important, but also complex. In the next months we will run more studies to learn more about how privacy cues and personal customer environments impact customers’ engagement with online support tools and their financial choices. Stay tuned for our research report with the complete results.

Joris Demmers is Lecturer and Researcher Digital Marketing at Monash University

Benedict Dellaert is Professor of Marketing at Erasmus University Rotterdam

Kristian Rotaru is Senior Lecturer Accounting Information Systems at Monash University