Understanding finance as human
This blog post is a lightly edited extract from our book, Customer-centric Innovation in Finance: Leveraging Human Insights to Drive Product Innovation in the Digital Age, by Erin B. Taylor and Anette Broløs (2024, Kogan Page).
Finance is not something we usually associate with human sentiments. While we covet money, we usually see it as a means to an end. Yet there is no doubt that money is associated with emotions, whether this be the pleasure of receiving a crisp new bill as a birthday present, being proud to wave a large bill at the bar, feeling ashamed because of not understanding the risks and profits of investments or the despair of not understanding how money can be lost because of bank fees when they were deposited in the bank for safe keeping.
And sometimes we have decidedly negative attitudes towards money or see it as being out of our control. In our study of Swiss women, we interviewed well-educated women who felt they did not know enough about stock markets to be able to invest, even if they had plenty of investment experience. Similarly, Danish academic Kirsten Bonde Sørensen (2013) carried out research in which she asked bank customers to draw their experience with money, and how they wished it would be. Most described how they felt unable to manage, and how they wished to be more in control of their spending and money decisions.
Indeed, money has always been social. Before formal financial institutions developed, such as commercial banks and central banks, people organized their finances largely among themselves. They made agreements about how to pay each other, formed mutual insurance cooperatives, lent each other money, and offered credit for purchases. They did all this without the need for official intermediaries to set rules and regulations.
The human origins of finance are well illustrated by the anthropologist David Graeber in his book Debt: The First 5,000 Years. Graeber explains how, since people in villages all knew each other, they would keep tallies of who owed what to whom in their heads. Over time, these turned into tally sticks or IOUs that could be cashed in or even used like money, so long as the next bearer trusted that the original issuer was good to pay his debt.
But while the historical foundations of finance are certainly social, that does not mean they were equal. People everywhere need to acquire the resources they need to survive. They need money, whether cash or digital, to pay the cashier at the supermarket. They need assurance that they will be looked after in the event of a catastrophe. They need loans to start businesses and buy homes. And they need to think about surviving in their old age. While this process was relatively egalitarian in foraging societies, and to a certain extent in small villages, human hierarchies have existed for thousands of years that have denied resources to many while bestowing them on a few. Indeed, formal financial services were initially developed for wealthy people.
This began to change around two hundred years ago, with the development of financial institutions for the poor in Europe in the 1800s, such as cooperative banks and insurance providers offering services for ordinary people. These include the Scottish Widows Association (founded in 1815) and the Nutspaarbank, a savings bank for the poor in the Netherlands (founded 1921). In the past few decades, the microfinance movement spearheaded by Mohammad Yunnis’s Grameen Bank has revived the notion of providing “financial products for the poor”. However, as we will discuss in more depth later in this book, there are serious limits to the ability of financial tools to redress financial inequality.
Combining money and relationships also raises moral quandaries. In her renowned book The Purchase of Intimacy, sociologist Viviana Zelizer argues that we all use economics to build and maintain intimate ties with other people. Along the way, however, we encounter quandaries as to how to strike a balance between using money to improve the quality of our relationships on the one hand, and overly quantifying them on the other. Any household that has tried to set a budget would realize that this balance is hard to maintain. Does earning more money than your spouse give you more rights? How should childcare contributions be compared to monetary income? To what extent should we worry about whether each household member makes an equal contribution?
The technologization of money is also adding new dimensions to our efforts to balance our socioeconomic lives. An interesting observation on the abstraction of financial transactions comes from Brett Scott, who in his book Cloudmoney: Cash, Cards, Crypto, and the War for our Wallets, notes how weird it is that we encounter scenarios in which we want to transfer money to a friend, who we are standing right in front of, but rather than hand over cash we make a transaction on our phone, sending a signal that might travel hundreds of kilometres before arriving on our friend’s screen.
And yet, there is nothing inherently antisocial about digitizing financial transactions. To the contrary, digital transactions provide the possibility for more social interactions in which money is used to express relationships. In China, people use an app to send digital “red envelopes” to each other containing small amounts of money. This practice is a technologized version of an age-old custom of giving people gifts of cash placed in red envelopes. Far from denigrating the gift, these digital red envelopes became immensely popular. People began to send each other tiny amounts of money by way of a greeting.
Money and financial tools also play a part in the financial relationships of people who have never met in real life, and who may never have communicated with each other at all. People donate to strangers’ Kickstarter campaigns because they want to support the goal. These days, charities collect far more money digitally than by campaigning on the street. In the video game World of Warcraft, players use real money to buy in-game tokens to get further ahead in the game and increase their status.
However, we shouldn’t forget that technology is fallible. Often, rather than using finance to facilitate social relations, people have to use their social relations to facilitate financial transactions. In Brazil, for example, a software glitch occurs when one person is trying to send money to another. To find out whether the receiver actually got the money, the sender has to call them to ask. Or residents of a rural village in Mexico, living far from a money transfer agent, rely on one local woman to collect money from their children living overseas. Or a professional woman living in Switzerland learns to use Google Wallet when her card payment fails at her convenience store.
Finance needs people as much as people need finance. How, then, can we ensure that finance and people are fit for each other? As financial services—and people’s use of them—grows in complexity, how can we ensure we are innovating a system that works in the context of people’s everyday lives? Our book, Customer-centric Innovation in Finance, makes a start at exploring some of these questions. We’d love to hear your thoughts.
