How Emotions Affect Financial Decision-Making

Financial planning, especially as consumers get older and begin to approach retirement age, takes on a greater level of importance. With so much information available to consumers in today’s landscape it would be easy to think decisions are driven by research and rational factors. However, according to research conducted by Dr. Mariann Weierich, and referenced in Older and Wiser? An Affective Science Perspective on Age-Related Challenges in Financial Decision Making, you might be surprised to find out that financial decisions can be as much as 90% emotional, and only 10% rational.

For marketers, understanding behavioral finance and the impacts of emotional decision making is critical. To improve response rates and drive marketing performance, messaging will need to be adapted to reflect the emotional state of consumers. Simply put, capturing and communicating the heart of these decisions, instead of simply relying on the concrete benefits from financial products and services, will resonate more with consumers. So, what are the emotional factors that drive financial decision making?

6 Common Emotional Biases in Finance

Let’s explore six negative emotions that factor into how consumers plan for their financial well-being, and then we’ll dive in to how marketers can flip these emotions around to the positive:

  1. Fear
  2. Anxiety
  3. Over-confidence
  4. Envy
  5. Regret
  6. Shame


Fear and uncertainty can negatively impact decision-making in multiple ways.  One common manifestation of this uncertainty is simply avoidance. We tend to avoid the things we’re unsure of, but avoiding tough decisions only makes them more difficult in the future.


Overwhelming worry can cause “paralysis by analysis,” where a person can become so anxious, they freeze up and don’t make any financial decisions. This paralysis will lead consumers to rely on their already established and typical approaches to decision making, which can often dissuade the individual from taking new factors into consideration, leading to poorer decisions.


The belief that immunity to financial mistakes due to superior knowledge can manifest in decisions, leading some people to take greater risks and neglect considering rational factors. Over-confidence sometimes increases as consumers age and as their personal income grows.


The motivation to “keep up with the Joneses” and increase material well-being may include negative impacts such as making decisions based on the anticipated perceptions of others, which can lead to overspending and not properly planning for the future.


Past financial mistakes bring powerful negative emotions which are difficult to overcome. This emotional reaction can increase the level of fear about making future mistakes, leading to hindsight bias. Hindsight bias is a dangerous heuristic where a consumer avoids similar decisions in the future even when it’s in their best interest.


Shame, or embarrassment over one’s financial situation, may lead to avoidance, especially among younger adults who have a perception that decisions are more complicated than they actually are.  Avoidance creates yet another mechanism for existing heuristics to creep into the decision-making process, often at the expense of newer, more rational inputs.

Helping consumers make the best decisions by understanding behavioral finance

As marketers it is imperative that we acknowledge these factors and how they can negatively impact financial planning. We also need to address these emotions head on in our communication efforts. We must develop a messaging approach that not only showcases the positive benefits and attributes of the brand or product, but also addresses emotional decision making and brings an empathetic tone to understanding the fears many consumers will face.

Successful messaging will combine the statement of positive attributes, a sympathetic acknowledgement of fears that may be present, and most importantly provide a tangible benefit to overcoming these emotions.