2 the consumer

8/2/2019 2 the Consumer

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2 The consumer

2.1 The consumer experience

Eat less. Exercise more. Quit smoking. We all know such behaviours wouldimprove our lives. Yet, I know and I do are often very different concepts.

While the previous chapter noted the need to build consumer skills, an

improvement in consumer and financial literacy does not always translate

into a positive change in behaviour. It is often assumed that issues of

consumer detriment are caused by consumers not having the correct

information or the appropriate skills to make sound decisions. Although this

is often the case, the empirical evidence also points to a more complicated

situation, where consumers decision-making is shaped by more than justaccess to the knowledge available in the marketplace.

The recentANZ Survey of Adult Financial Literacyin Australia (ANZ

Survey)found that despite a general community awareness of the basics of

financial literacy, people were nevertheless making poor decisions about

the use and management of their money. While 98 per cent of those

surveyed understood the need to prioritise their needs to balance income

and expenditure, 16 per cent chose to spend all their income as soon as

they received it.1

It is somewhat of an understatement to say that consumer behaviour is

complex and multi-faceted. Many factors play a part in determining an

individuals actions and even when sound decisions are made, they are

never completely future proof. For example, a consumer can choose the

most competitive home loan in todays market but find that it becomes less

competitive within a year.

This does not mean that programs to improve consumer and financial

literacy do not have an important role to play. On the contrary, it

recognises that the problems faced are often not only ones of knowledge

but also attitudes and behaviour. For programs to be successful they must

recognise the interactions between the differing variables that impinge on

consumer behaviour, consumer knowledge and long term change.

International research on the effectiveness of consumer and financial

literacy programs has shown that programs with these understandings

have had more consistent success than those that simply targeted

consumers under an information asymmetry2 assumption.
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The key to success has been in recognising consumers are a heterogeneous

group and that programs need to target specific skills, attitudes and

behaviours depending on the consumer and the type of transaction or

activity.

This chapter draws on research from Australia and overseas to identify the

key drivers of consumer decision-making that need to be understood and

influenced in effecting positive change.

This analysis is by no means exhaustive; rather it aims to be used as a

starting point for further discussion and research.

2.2 The Consumer Behaviour Model

To better understand the factors that lead to consumer decisions, the

Taskforce believes there is a strong need for an agreed model to measure

consumer and financial literacy over time. The Consumer Behaviour Model

(Figure 2.1) is proposed as such a model for discussion.

Figure 2.1


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The Model looks at things from the consumers perspective and shows how

external events, socio-economic background, personal characteristics, skill

levels and choice of information can all shape the way decisions are made.

The Model is a synthesis of all of the best approaches to these problems

drawn from a wide range of disciplines.

It is the Taskforces hope that this model can be developed and tested in a

collaborative way across all sectors. This would include incorporating

relevant data streams such as research on skill levels (for example, literacy


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and numeracy levels), complaint data (to indicate both levels of detriment

and access to redress services), attitudinal research (such as the

ANZSurvey) and relevant socio-economic data.

In this way, the Model can be measured and used by information providersto determine priority areas and the effectiveness of current programs. To

show this in a practical sense, Figure 2.2 illustrates a simple example of a

consumer named George buying his first car.

This example illustrates a common problem experienced by young people

when buying their first car. While many shop around and negotiate the

purchase price of the vehicle, many do not shop around for finance, but

simply accept whatever linked finance the dealer offers. As a result, the

total cost of the acquisition (the cost of the vehicle plus the cost of thefinance) can be uncompetitive and sometimes, unaffordable for the

purchaser. George was a good negotiator; he did well negotiating on the

purchase price. However, he failed to understand that he was making two

purchases, the vehicle plus the finance.

The fictional story of George buying his first car, shows how the model can

assist us to understand this consumer problem and identify areas where

further assistance may be required. The Model shows how Georges

problem was caused by a number of things:

his age and background (he sought independence and rebelledagainst his parents values)

incorrect assumptions (for example, all personal loans are the same)

lack of information (for example, about personal loan products, othersources of finance)

lack of shopping around (for example, he might have found that theuniversity credit union offered better finance)

misplaced confidence in his friends expertise (which did not extendto finance).

In Georges case, taking time to shop around for finance and seeking

advice from an independent source (for example, from the free student

financial advisory service at the university) would have delivered better

outcomes.

The problem however is that George did not know that he had a need foradvice and so he did not seek out advice. Thus no matter how good the


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available government and consumer financial advisory services are, these

would not have reached George. Some other type of strategy is clearly

needed to help the Georges of this world.

At Chapter 4, The Solutions, the George example continues with the focusbeing on solutions that would be effective in addressing this particular type

of consumer problem.

The remainder of this chapter explores the components of the Model and

how, combined, they paint a picture of the current consumer experience.

This Model is then explored again in Chapter 4, where it is shown how it

can be used by information providers as a tool to more effectively change

consumer behaviour.

Figure 2.2: The Consumer Behaviour Model in action the story of

George


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2.3 The external environment

Consumer behaviour does not occur in a vacuum. Economic, regulatory,

cultural and political factors shape the external environment in which we

make our choices.

This often means that individual consumers are unable to control the

direction of their external environment. Nevertheless, the principles of

market forces and of political representation show that while one consumer

may not be able to affect change, several consumers can. That is not to saythat certain consumers may not be able to influence wider change through


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political or social action, but for most, it means accepting and dealing with

the economic, cultural and political environment that is dealt to us.

Economic

Technological change and increased competition (particularly in the finance

industry) have brought many benefits to consumers in terms of increased

choice and accessibility. At the same time, these trends have brought with

them the need for consumers to be informed about an ever increasing

range of products.

As the range of products expands, the market becomes more complex and

the information required for decisions increases. Chairman of the United

States Federal Reserve Board, Alan Greenspan, has highlighted the

importance of financial literacy in an increasingly complicated financial

landscape by saying:

Forty years ago, a simple understanding of how to maintain a

checking and savings account at local banks and savings institutions

may have been sufficient. Now, consumers must be able to

differentiate between a wide range of products and services, and

providers of those products and services. Previous, lessindebted

generations may have not needed a comprehensive understanding of

such aspects of credit as the impact of compounding interest and theimplications of mismanaging credit accounts. Today, however, the

advance of telecommunications technologies and the development of

other new technological tools have broadened the availability of

credit and other banking services.3

Other economic factors which affect behaviour and capacity include:

the employment opportunities available

the level of inflation

the level and complexity of products

the competition present in the market

the extent to which products are marketed.

The way in which an industry markets the products and services it has to

offer can affect how a consumer behaves. If credit is marketed as an easy

consumer commitment through terms such as buy now, pay later, thenconsumers are likely to embrace these offers in a carefree way. However, if
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credit is marketed as a serious consumer commitment, then consumers are

likely to think twice before committing.

Similarly, many industries are aggressive in the way they market their

products as consumer needs rather than consumer wants. For example,many young people today would see a mobile phone as a social need

rather than a social want.

Government

The political environment also has an impact on consumers through the

direction of government policy that is applied to the economic and

regulatory environment.

Some governments may favour interventionist approaches to marketregulation while other governments may favour less interventionist

approaches. Individual politicians will also have their own policy priorities

that they bring to government.

Some political policies can have immediate effects on consumer behaviour.

For example, the deregulation of the banking sector means that consumers

can now use credit unions, building societies and other non-bank financial

institutions for finance in a way that was previously reserved for banks.

Other government initiatives have longer term effects. For example, in

recent years there has been a decisive shift in most member countries of

the Organisation for Economic Co-operation and Development (OECD)

toward consumer responsibility for savings, credit and investment

management. This shift has meant that consumers incentive to acquire a

better understanding of financial issues has increased.

In the United Kingdom (UK), which differs from the Australian environment

in many ways, there is evidence that consumer interest in financial matters

has been blunted historically by the political post-war safety nets of the

welfare state and by the generous occupational pension schemes that

employers had been required to provide.4

Consumer regulation is also important in ensuring consumer confidence as

it can provide fairness and transparency in transactions.

It is recognised that financial products are inherently more complex than

other types of consumer goods and it is widely accepted that consumers

are in an unusually weak position because of an imbalance in information(information asymmetry).


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The recent introduction of the Financial Services Reform Act

2001 (FSRA)has established a harmonised licensing, conduct and

disclosure regime for all financial product providers and advisors with the

aim to improve the level and quality of information that is available to

consumers. The information that is provided is required by the legislation tobe clear, concise and effective.

The most noticeable effect for consumers of this change is in the products

and services that were previously not subject to comprehensive information

requirements.

For example, pre-FSRA, consumers did not always receive full information

about financial products and services.

Post-FSRA, consumers would typically receive the following information,

regardless of the type of financial product being sold:

a Financial Services Guide setting out the terms and basis of theirservices

a Statement of Advice setting out the basis of that advice, as well asthe amount and source of any commissions or other remunerationthey receive from product providers

a Product Disclosure Statement providing the essential details aboutthat product.

Consumers now have more information than ever to comprehend and the

need for a coordinated and consistent approach to disseminating

information, particularly information from government, has never been so

strong.

Feedback

Economic forces and government intervention can both improveand constrict a consumers ability to understand and act on

information. As such, information providers must make

assessments about the extent to which information alone can

change consumer behaviour.

Are economic and government factors sufficiently understood by

information providers in information provision to consumers?
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2.4 Socio-economic and demographic factors ourbackgrounds

Socio-economic status and demographic profile are also key determinants

of consumer behaviour. A persons level of income, their culturalbackground, their gender, their health status, their educational background

and their location are all important factors in how they make decisions.

The ANZ Survey found that consumers from a lower socio-economic

background and those who had non-mainstream demographic profiles were

over-represented as having the lowest levels of financial literacy as defined

by the survey (Figure 2.3).5

Figure 2.3: Segments with lower financial literacy Australian

adults

Segments strongly

over-represented in

lowest quintile

Segments moderately

over-represented in

lowest quintile

Segments slightly

over-represented in

lowest quintile

Education less than year

10 and no

occupation: Lowest levelof financial literacy overall;

particular problems with

knowledge of payment

methods, basic arithmetic,

financial terms, risk and

return, consumer redress

options.

Unskilled workers andnon-workers:Perform

poorly in many areas

including knowledge of

channels, fees, arithmetic,

risk and return

People with lower

incomes (household

income of less than

$20,000 per annum): Poor

The following segments

have a better

understanding ofpayment methods, but

have difficulties with


return, superannuation

and where to go with

complaints or disputes:

Students

Personal income

less than $20,000

People who rent

their residence

Semi-skilled

workers

Casual employees

Marginally lower

financial literacy among

the following twosegments is associated

with lower levels of

income and education

(which are strongly

associated with

financial literacy):

Women

People living in

country areas


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knowledge of channels,


return

Lower savings (less than$5,000): Poor performance

on most measures

Looking for work: Poor

arithmetic ability, little

planning, low knowledge of

consumer redress options

People at each end ofthe age

spectrum:Younger adults

(18 24 years old) have

difficulties understanding

financial terms,

superannuation, basic

arithmetic, risk and return.

Older people (aged over

70 years) have difficultyunderstanding payment

methods, as well as most

other aspects.

Retirees

Single people (living

in a shared household,

living alone, singleparents)

Lower

education (less than

Year 10)

People who speak a

language other than

English at home.

When looking solely at skill levels (as outlined in chapter 2.2), the level of

income and the level of education are the strongest determinants of a

consumers skills. Although other factors can appear, on closer inspection

they tend to come back to income and (or) education.

This is consistent with research undertaken overseas. A UK Review

suggested that people from poorer backgrounds can have excellent day-to-

day budgeting skills since their spending and saving need to be carefully

planned, while their lack of education precluded them from more

sophisticated financial activity. Conversely, those from wealthy

backgrounds may engage in more sophisticated financial activity due to

their education but some have low financial literacy and poor day-to-day

budgeting due to the amount of money at their disposal.6

Socio-economic status


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Socio-economic status generally refers to a measure of an individuals or

groups social standing and can be used, to some degree, to measure

potential disadvantage. It usually relates to the income, occupation,

educational attainment and wealth of either an individual or a group

The increased range of financial services now available to Australians has

benefited the majority by providing more choice and tailor-made products.

However, for some socio-economic groups the additional complexity has

compounded existing disadvantages and these changes have meant they

are at an increased risk of exclusion.

Some social groups may be more likely to experience financial exclusion

the process that prevents poor and disadvantaged social groups from

gaining access to the financial system. Key factors involved in financialexclusion include physical lack of access to banking and financial services,

geographical exclusion, low levels of financial literacy and other barriers

such as risk assessment discrimination; and low income. Aspects of

financial exclusion include:7

Access exclusion Where people are not appropriately treated inrisk management processes. This can work to unfairly restrictpeoples access to finance. However, we also see finance unethicallyprovided to people who do not have the capacity to meet

repayments.

Condition exclusion Where conditions attached to financialproducts make them inappropriate for the needs of some people. Inother words, products and services are tailor-made for certainconsumers and not others, usually according to capacity to pay.

Price exclusion Where price precludes people using the type offinancial products they need, including basic products like savingsaccounts.

Marketing exclusion Where some people are effectively excludedby targeted marketing and sales (because they may not beconsidered as profitable a prospect as other consumers)

Self exclusion Where people decide that there is little pointapplying for a financial product because they believe they will berefused.

A recent paper on financial education8 identified the socio-economic and

demographic groups most likely to be financially excluded in Australia as

follows:
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households and individuals who have never had a secure job

elderly people who are part of a cash only generation

young people and households who have not yet made use of financial

services

people on low incomes

women who become single mothers at an early age

people and communities from non-English speaking backgrounds

regional and remote communities and depressed urban communities

consumers with disabilities

consumers with literacy difficulties

indigenous consumers.

Education

In most studies, both in Australia and overseas, education level was the

strongest predictor of a consumers competency. The lowest levels of

consumer and financial literacy were found with those having a lower high

school education (equivalent to Year 10 or less), while those with higherlevels were more likely to have a higher level of education.9

In addition, most Australians would not have been exposed to consumer

and financial education at school. The Australian Securities and

Investments Commission Discussion Paper, Financial Literacy in

Schools, found that whilst there were opportunities for teaching financial

literacy skills, it has not been a formal course of study in any jurisdiction.10

As the following table illustrates, education level is also associated with

long term financial wellbeing. On average, people with a university

education will have approximately 60 per cent higher net wealth than those

that finished year 12. Interestingly, university educated consumers have a

60 per cent higher debt level than year 12 graduates, which indicates the

university graduates are in a better position to access loans and that

accessibility to credit markets is an important determinant of financial

wealth. The debt : net worth ratio was approximately the same for both

educational groups.

Figure 2.4: Mean net wealth and debt by education level
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Age cohort

Being a certain age means belonging to a certain generation. That

generation, be it Baby Boomer or Generation Y usually share some

sociological traits. These sociological factors can lead to relatively

homogenous groups (particularly where those groups have grown up with

similar experiences). In these circumstances, age can, to a degree, predict

certain cultural and behavioural commonalities.

However, as society and culture has grown more complex, the

commonalties of generation are breaking down. This is most evident with

young people, the so-called Generation Y. They exist in a society that offers

more choices for recreation, lifestyle and employment and thus tend to be

more splintered as a generational group.

Teenagers from Generation Y are more likely to have debt management

problems associated with mobile phones than their parents as teenagers

who did not have mobile phones or the same opportunities for credit.

Gender

There is evidence to suggest that women and men exhibit different

financial behaviour. This may be explained by a variety of environmental

factors that affect men and women in different ways. For example, women

tend to work in lower paying jobs compared to men and have to take more

time out of paid work to look after children. This impacts on their ability to

save for retirement.

The precarious position of some women has been highlighted by the

increasing concern over relationship debt, where, following a break-up or


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divorce, the partner (usually the woman) has been saddled with the

responsibility of a loan taken out by her partner.11

However, it is dangerous to generalise or predict consumer behaviour

based on gender in all circumstances without proper research into thespecific problem.

Cultural background

Indigenous communities

Aboriginal and Torres Strait Islander consumers are far more likely to have

low financial literacy and experience financial exclusion relative to the rest

of the population. Their vulnerable position is often exacerbated by poor

health, low socio-economic circumstances, geographical isolation andlimited English. Given that Indigenous people face particular disadvantages,

it is recognised that targetedprograms are necessary to improve financial

literacy and raise living standards. Although circumstances and issues can

differ significantly across jurisdictions, there are also many common

problems that can be addressed through coordination.

The uniqueness of Aboriginal and Torres Strait Islander cultures must be

appreciated in any attempt to improve financial literacy. For example,

many Indigenous communities place an emphasis on the community andextended family rather than the individual, which can result in the practice

of the individual sharing access to money within the community. Another

money management practice unique to Indigenous communities is the

book-up system where consumers tend to place all their expenditure with

a certain business.

The recent Cape York Family Income Management project also found that

most Indigenous consumers prefer face-to-face assistance when seeking

advice on money management. They found that when this advice wasoffered in a culturally-sensitive way, there was an increase in motivation by

the consumer to properly plan for their future through budgeting, saving,

workforce participation and increasing their awareness of exploitative

practices.

Culturally diverse communities

Consumers from culturally diverse communities, particularly where they

were born overseas, may be unfamiliar with Australian practices and lack

access to proper information. Some community members may be


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discouraged from establishing a traditional banking relationship to acquire

financial services because of language, cultural and educational barriers.

For example, those living in the Arabic community tend to choose Arabic

financial institutions as they conform to the Koran and do not chargeinterest. However, these consumers may not be aware that they are being

charged administrative fees by these institutions, which in some cases, cost

more than the interest that would have normally been charged.

Location

Where someone lives can determine their access to information. Those who

live in rural and remote Australia generally have poorer access to

information than those who live in metropolitan centres. Because of their

isolation, many rural consumers are forced to rely on printed and online

resources rather than face-to-face services.

However, in many isolated and Indigenous communities, consumers do not

have, or are not equipped to have, access to online resources. In these

communities access to any information or assistance can be difficult.

A 1997 report on the Consumer Education Needs of Rural and Remote

Australians, highlighted the limited consumer choices available in rural

communities and the reliance that consumers placed on getting appropriateinformation and satisfaction of their needs from the small number of

businesses located in their community.12

From a demographic point of view, the report also found that rural

consumers tended to be older (a median age of 48), less-educated

(40 per cent have not completed high school and 23 per cent have tertiary

qualifications) and more likely to be married with children at younger ages

(85 per cent).

Health status

Health factors such as mobility and the ability to properly communicate can

limit the opportunity and capacity to properly engage in consumer and

financial activities. Many surveys have showed the difficulties that

consumers with visual impairment face when accessing banking services

such as ATMs, websites and printed material.

Similarly, consumers with intellectual disabilities or who suffer psychiatric

disorders often require assistance in determining the most suitableproducts and services to meet their needs.


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Aside from specific health issues, all consumers face their own life

expectancy. Women now have an average life expectancy of 82 years and

men 77 years. These figures are projected to increase to at least 86 years

for women and 81 years for men. This means that young people need to

plan for at least 20 years in retirement, which makes planning for anuncertain future all the more complicated.

Family background and status

Family background and current family status also affects a persons ability

and attitudes in managing money.

For example, the ANZ Survey found that single people had a lower level of

financial literacy when compared to couples. A reason for this may be that

couples have a greater incentive to seek out financial information because

they feel a need to plan for their financial future, especially if they have

children. Single people may be waiting to meet a partner and settle down

before they get involved in planning for their future.

Families also impart informal learning. Learning that occurs in the early,

formative years in the home can have a strong influence on behaviour later

in life. Here, children are exposed to particular practices and attitudes

which can often shape their approach to consumer and financial decision-

making.

Feedback

Where we come from and our socio-economic status in life are

key determinants in how we access and use information. As

such, it is important for information providers to recognise the

particular disadvantages that some consumers face in both

accessing and acting on information. .

Are socio-economic and demographic factors that important?

How should they be factored into what information providers

produce?

2.5 Personal characteristics the things that are uniqueto us

At some stage, we have all probably been guilty of making decisions, that

in hindsight, we realise were not in our best interests.


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Lack of information is not the only limitation to optimal decision-making.

Individual characteristics, including intuition, attitudes, motivations and our

limited problem-solving capabilities will shape the choices that we make.

Attempts to improve financial literacy are more likely to succeed if we can

design tailored programs that acknowledge consumers as a diverse group.

The cognitive processes involved in decision-making are receiving

increasing attention in academic literature. Daniel Kahneman won the 2002

Nobel Prize for his work on bounded rationality13 and the distinction

between intuitive and deliberate thought processes. Kahneman found that

most behaviour is intuitive and based on perceptions. Only in some cases,

is intuition modified or overridden by deliberate reasoning.14

In the United States (US), there is evidence to suggest that the primarycause for poor savings amongst consumers is procrastination, since

virtually all saving done by Americans is accomplished through forced

savings mechanisms such as participation in pension plans.15 Many people

do not have voluntary savings strategies because they have high discount

rates, which means that they value a dollar of current consumption more

than a dollar of future consumption.

The power of the present outweighs concerns of long term wellbeing, since

the future is unknowable and the emotional components of decision-making

are associated with the immediate present. Unfortunately, the benefits of

most financial products, especially savings vehicles and insurance products,

are delivered over the long term. The ongoing problem of insufficient

retirement savings is, in a sense, an understandable response to the length

of the timescales and the uncertainty involved.

Behavioural experiments have been conducted in the US to assess the

relative influence of opt-in and opt-out programs on encouragingemployee

contributions to retirement saving accounts (employers have the option to

make matching contributions). Under the existing system, employees are

required to nominate to have contributions deducted from their salaries

which the employer will match. In one experiment, 43 per cent of

employees chose to opt-in to a retirement savings program at one

company, while at another company where the employer automatically

enrolled all employees in a matched-contributions scheme, 92 per cent

chose to remain in the program even though they had the option to opt-

out.16
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Like superannuation, attempts to improve consumers understanding of the

need for insurance are beset with the same behavioural problems. The

future is unknowable and rather than use probability theory to make a

decision, consumers tend to automatically defer to their intuition which

may be clouded by past experiences or optimism. As a result, a goodproportion of Australian households and small businesses are underinsured

or not properly insured. The insurance industry estimates up to 40 per cent

of homes either do not have insurance or are not properly insured while the

Australian Consumers Association found most homeowners inadvertently

underestimate the value of their properties.17

Most of us know people who are overly cautious to the point of missing out

on financial opportunities. At the same time, there are other people whose

misplaced high level of confidence in their financial ability has led to poorfinancial decisions. Research in the UK found that confidence and risk

aversion are important influences on financial behaviour.18 Similarly, the UK

Financial Services Authority and the Basic Skills Agency (a not-for-profit UK

organisation whose aim is to improve literacy and numeracy) describe

three levels of financial capability, each of which is closely linked with

confidence:

Confidence is important at each stage as it is one of the key

inhibitors to effective financial capability and with it comes the abilityto develop the necessary skills/confidence, a willingness to acquire

appropriate knowledge, a true understanding of the relevant

issues/services and a desire to question attitudes relating to financial

matters.19

Why are some people compulsive shoppers and unable to save but others,

with similar incomes are far more successful financially? As well as

confidence, risk aversion and procrastination, many other personal

characteristics play a role in consumer and financial decision-making. Theseinclude fatalism (where some people see themselves as largely powerless

and being victims of fate, while others believe they are in control of their

destiny), self-control/self-discipline, willpower, self-interest, attitude to

authority, self-esteem and optimism/pessimism.

Exactly how all these influences interact and impact on behaviour remains

unclear. What is clear is that more work needs to be done on how

consumer and financial education campaigns can affect behavioural

change.
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Feedback

Understanding the different personal characteristics that lead to

consumer problems helps information providers decide whether

they need to target behaviour rather than product knowledge inany information campaign.

Is a broader understanding of human behaviour useful in

addressing consumer and financial literacy? How do we best

discern the different personal characteristics of people in the

community?

2.6 Needs and aspirations the things that are uniqueto us

As consumers we all have needs and aspirations that help us focus on how

we manage and use money.

In a broad sense, much human behaviour results from people trying to

satisfy their needs. Different people have, of course, different needs. Some

needs can be easy to identify, such as the physiological needs for food and

water and safety and security. But they can also be more complex such as

the social need for status. For example, many young people would feel a

loss of status without a mobile phone.

At the same time, we all experience different levels of motivation in trying

to satisfy those needs. The degree of motivation can determine the size of

the goals and thus our aspirations as consumers. For example, I may need

to retire on a basic income but aspire to retiring on a more generous

income. These are the things we would like to strive for in life our future

wants rather than our current needs.

Traditional approaches have seen these issues characterised as the

distinction between wants and needs. However, modern theories of

needs and behaviour have shown a blurring between wants and needs.

Part of the responsibility for this blurring rests with the aggressive

marketing techniques and activities used by some product and service

providers.

In fact, some of these activities have crossed the line into unethical

advertising, which has been especially evident with property investmentspruikers.


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Techniques commonly used by sales people are also aimed at persuading

consumers to purchase products or services which they not only dont need

but which they hadnt actually even wanted (and may never use). For

example, upselling (where the consumer wants to buy a standard item but

is pressured into buying a more expensive version) and incentive buying(where a consumer is given an extra item or a reward when buying a

certain product).

This is where consumers are being persuaded that their wants are in fact

their needs.

This is why the Taskforce has viewed the distinction as one of needs and

aspirations. It recognises that needs have a physiological base but in some

cases have taken on social dimensions dependant on the individualslifestyle. It also recognises that we have a myriad of wants which may be

realistic or unrealistic and be as small as a new music CD or as large as a

luxury house. However, aspirations represent the bigger wants in our lives

that are realistic and that we are actually motivated to strive for as goals.

In other words, as consumers we all have our own shopping list of things

we need and things we aspire to have. For some of us, this shopping list is

well thought out and structured to suit our particular circumstances. For

others, it is rewritten every week in response to the people and

organisations that influence our lives.

It is therefore important for consumers to properly develop their thinking

on what their needs and aspirations are and what decisions they need to

make in the market to satisfy them.

Feedback

Understanding and appreciating the differences between

consumer wants and aspirations helps information providersbetter prioritise information while recognising that many

consumers take an aspirational outlook to issues that face them.

Is an appreciation of needs and aspirations useful?

2.7 Consumer life events what we all face in life


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Throughout our life, the average person will engage in many life events

that have major financial implications (for example, having children, buying

a house, losing a job).

Some of these life events are linked with life stage. For example, buying amobile phone and acquiring a credit card are almost rites of passage for

todays teenagers, while planning for retirement becomes more important

as we get closer to retirement (when it should be important long before

then).

Thus a life stage approach could be used to map key events that occur at

different stages of life and to examine the associated priorities and

aspirations of Australian consumers at different stages of life (school

children, teenagers, young adults, older adults, retirees and so on).

However, there are many different pathways through life. Many of us do

not live in traditional nuclear families. Single parent and blended families

are common. Employment opportunities and preferences can also set us on

different pathways (for example, some people choose to opt-out of the paid

workforce, some return to study later in life). Also, our journey through life

is often disrupted by unexpected events or crises. Events such as injury,

illness or natural disasters can upset the best laid financial plans.

A life stage approach is useful but will not necessarily accommodate the

many and varied family and household structures that make up Australian

society today.

This diversity is illustrated in Figure 2.5. The diagram includes many (but

certainly not all) different sectors of our society and illustrates that many

key life events can occur at various stages of the life cycle.

Figure 2.5


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2 the consumer

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