The Human Factor in Financial Decision-Making
Image by Frantisek Krejci from Pixabay
The Psychology Behind Your Spending
How Human Factors Shape Financial Decisions
What do you do when you realize you have just purchased another round of goodies from the TikTok shop? Cringe, yeah maybe. Have you ever wondered why online shopping feels so effortless? Or why do you tend to buy more when browsing on your phone late at night? Human factors psychology is a subset in psychology that explores how people interact with systems, environments, and technology. These insights play a crucial role in the way we engage with financial systems, such as banking apps, tax software, and investment platforms, which influences our financial behavior by generating various cognitive loads, decision fatigue, and behavioral biases.
Consider how easily people can make impulsive purchases through one-click shopping. The convenience it provides offers various pros and cons, while great for retail, it can wreak havoc on financial stability. Similarly, poorly designed budgeting apps can discourage users from tracking expenses effectively. Human factors psychology focuses on optimizing the relationships between humans and systems, this allows for the ease of use, efficiency and the safety. When you apply this to finance, many businesses especially in the financial technology (fintech) apply these principles to influence consumer behavior, which often encourages spending as opposed to saving.
I am sure by now you are wondering how human factors influences our financial behavior? Just think about our money habits. Think about how human psychology is deeply intertwined with how we manage, spend, and invest our money. Take a look at some of the examples of influenced behaviors:
Cognitive Overload & Financial Mistakes: Overwhelming financial jargon or complex investment options lead to decision paralysis. By not understanding what is being presented people often default to inaction or poor choices. It's as simple as a decline or mix up of stock investments all because the system isn’t user-friendly.
Automation & Spending Habits: Banking tools that are AI-driven tend to help users save, but they also create psychological detachment. Auto-debits make it easier to ignore where money goes, such as creating a false safety net where people assume there is money in the bank when there isn't, often leading to overdrafts and additional fees.
Interface Design & Investment Behavior: Applications use psychological triggers like gamification (e.g., progress bars for saving goals) to keep users engaged, such as Robinhood’s gamified investing app encourages frequent trading, which may not align with long-term wealth-building strategies. No shade because I actually love their app.
Various Design & Store Layouts: Layouts are systematically designed to encourage impulsive shopping habits. Grocery stores place essentials at the back so shoppers pass by tempting impulse items. Have you ever wondered why you have to pass the makeup, gift cards, flowers, and various supplies before you get to the actual food items? Or why the toys are always beside or adjacent to the kids' clothing?
Now that we have a general idea of how understanding Human Factors relates to financial systems and how their platforms are designed, we can lead with better decision making. The examples above are all strategies that impact not just what we buy, but how we think. These tactics influence all aspects of our financial behavior and management. As I continue to grow with my research, I can explore ways to assist others in reducing financial stress, increasing positive engagement with budgeting tools, and enhancing overall financial literacy.
The Future: Can We Hack Our Own Financial Psychology?
Understanding these tactics allows us to counteract them. If businesses use human factors psychology to increase spending, we can use it to foster financial wellness.
Set Default Savings: Automate savings before spending.
Use Visual Cues: Keep financial goals visible with apps that track spending.
Leverage Behavioral Triggers: Use notifications that remind you to save rather than spend.
Think about the last time you made an impulsive financial decision, was it the bright colors and display, the infamous "Buy 1, Get 1" sales tactic, or was it the layout design that subtly nudged you towards it? Challenge yourself to evaluate the usability of your financial tools and whether they truly serve your best interests. And the next time you shop, ask yourself: "Is this purchase truly needed, or am I being influenced by a well-designed system?" Awareness is the first step to financial control.
A Personal Note:
I’ve fallen into the trap of impulse spending on late-night Amazon, especially TikTok scrolls. Once I understood how these platforms use psychological nudges, I set boundaries, such as removing saved payment methods and setting a 24-hour rule before big purchases. The result produced more mindful spending and long-term financial stability. Although that may not work for the masses, my final thought and question is, if financial platforms were designed with true human psychology in mind, would we make fewer costly mistakes? It’s a question worth exploring as we aim for financial freedom.
