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In the financial services industry, biases often influence the assumptions we make about why people lack financial security or stability. These biases can lead to misunderstandings and ineffective support for those in need.
We hear more often than we like of a client who has had a negative experience with someone in the financial services industry - an accountant, banker or adviser. We truly believe the cause of these issues is a lack of empathy, misguided support or misunderstanding due to bias.
It is crucial to recognise and address these biases to create a more inclusive and supportive financial environment. This article explores intersectionality, systemic discrimination and financial bias, and the resulting cycle of financial struggle. It also provides actionable steps for financial advisers, policymakers, friends and family members to better support those facing financial challenges.
Financial Bias and Judgement
Do you have a financial bias?
Do you assume everyone has the same opportunity to achieve financial success?
Do you believe those from a lower socioeconomic background are financially irresponsible?
Financial bias refers to the preconceived notions and assumptions we hold about people's financial situations.
Common biases create judgement, such as believing that financial instability results solely from poor personal choices or a lack of effort. These assumptions overlook the complex interplay of various factors that influence financial stability.
Financial bias can create harm, as our biases are embedded within our subconscious and drive our actions, behaviours and decisions. This becomes a major problem when those in the financial services industry are positioned to support those who they hold a bias about.
Intersectionality and Systemic Discrimination
Intersectionality, originating in black feminist theory by Kimberly Crenshaw, describes how different aspects of identity - such as race, gender and class - intersect to create unique experiences of discrimination. It highlights how these identity factors interact with power structures to produce structural inequalities, resulting in experiences beyond just individual forms of discrimination.
Women of Bangladeshi, Pakistani and mixed white and black Caribbean heritage see the largest ethnicity pay gaps: 28.4%, 25.9%, and 25.0% respectively. (Double Trouble: The Ethnicity Gender Pay Gap, Fawcett Society).
In finance, these intersections significantly impact one's ability to achieve financial security. Systemic discrimination, such as unequal access to credit, the race and gender pay gap or discriminatory lending practices, exacerbates these challenges, making it harder for marginalised groups to build stable financial futures.
The Cultural and Psychological Impact of Financial Struggle
Consider the young influential twentysomething, in awe of the snazzy-looking "investor" on Instagram, investing blindly into Crypto, driven by the desire to appear successful... This pressure, combined with the shame and stigma of financial struggle, when comparing to others that look just like them, can lead to isolation, anxiety and depression.
Cultural emphasis on materialism pressures individuals to conform to societal standards of wealth, often leading to poor financial decisions. Understanding the role of economic segregation, limited social mobility and financial shame will help to alleviate the bias and assumptions held.
The Journal of Organisational Behaviour and Human Decision Processes describes how financial shame may cause people to avoid important financial information, resulting in a cycle of financial hardship. Financial shame and isolation make it harder to seek help and break free from financial struggles, and let's not forget that financial illiteracy also exacerbates this issue. Individuals without adequate knowledge make poor decisions, further entrenching their instability.
Addressing both the cultural and educational aspects of financial health is essential for comprehensive support.
The Imperative for Change
But how do we start addressing these issues? By integrating.
Committing time to understand these issues in financial services, we can provide more effective and empathetic support to those in need.
Recognising the root causes of financial instability allows us to develop solutions that go beyond surface-level advice and address the underlying factors that contribute to financial insecurity.
Actionable Steps for Improvement
What we speak about here is huge, but there is plenty you can do to help move things forward. Below we share three ideas - for financial services, policy makers and the general public.
Educate and Train Professionals in Financial Services
Financial advisers, planners and customer advisers working in the financial services industry should receive training that emphasises the importance of intersectionality and systemic issues in finance. By understanding the broader context of their clients' financial situations, advisers can offer more tailored and empathetic support.
Promoting empathy and understanding in client interactions is crucial. Financial advisers should be trained to listen without judgement and provide advice that considers the unique challenges faced by each client.
Policy and System Reforms
Advocating for policies that address financial inequality is essential. This includes supporting legislation that promotes fair lending practices, improves access to credit for marginalised groups and addresses systemic discrimination in the financial sector.
Supporting systemic changes within financial institutions to make them more inclusive and equitable is also important. This can involve reviewing and revising policies, procedures and practices to eliminate bias and discrimination.
Community Support and Resources
Creating accessible financial literacy programmes can empower individuals with the knowledge and skills they need to make informed financial decisions. These programmes should be designed to reach diverse audiences and address the specific challenges faced by marginalised groups.
Developing support networks to reduce shame and isolation is crucial. Community-based initiatives that provide safe spaces for individuals to discuss their financial challenges and seek support can help break down the stigma associated with financial struggle.
Financial bias and systemic discrimination play significant roles in perpetuating financial insecurity. By recognising and addressing these issues, we can create a more supportive and inclusive financial environment. Financial advisers, policymakers, friends and family members need to integrate these considerations into their approach to supporting those facing financial challenges. Together, we can build a system that promotes financial stability, free from stress, struggle and shame.
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