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Writer's pictureSima Ohadi

Why people avoid financial advice - What's the real driving force?


In the complex world of personal finance, seeking professional advice should be a natural step for many individuals. Yet, a troubling trend persists: many people actively avoid consulting financial advisors, even when they clearly need it. This phenomenon, which may seem counterintuitive at first glance, has deep roots in human psychology and social dynamics.


Brain neurosciences
Photo iStock by Onurdongel

Recent studies in financial psychology and consumer behavior have shed light on the underlying reasons for this reluctance. Among the most significant factors, anxiety and fear of judgment emerge as major obstacles. These emotional barriers, often underestimated, play a crucial role in the decision to seek or avoid professional financial advice.


This phenomenon presents striking parallels with other areas of life where individuals hesitate to seek professional help, such as healthcare or mental health. In each of these cases, the fear of being judged or revealing personal vulnerabilities can outweigh the obvious benefits of professional expertise.


Understanding these dynamics is crucial not only for financial advisors and institutions but also for individuals who could benefit from financial advice. By exploring the true drivers of this reluctance, we can begin to develop strategies to overcome these barriers and encourage a more open and proactive approach to personal financial management.


Anxiety and Reluctance to Seek Advice


Many people refrain from seeking help with their finances due to the anxiety associated with disclosing their financial situation and past mistakes. The fear of being judged often leads to shame, causing hesitations to open up and ask for the advice they truly need. People who have experienced financial missteps or are uncertain about their current financial situation often hesitate to fully disclose crucial information. This hesitation can lead to poor advice or, worse, no advice at all.


Moreover, there is a persistent fear of being judged: What will the advisor think of my situation? This anxiety is particularly pronounced among those with lower financial literacy (Gerrans and Hershey, 2017). Unfortunately, this can lead to a vicious cycle - those who need advice the most are often those who avoid it, exacerbating their financial situation over time.


The Power of Seeking Advice to Reduce Anxiety


On the other hand, individuals with higher financial literacy are more likely to seek advice. Why? Because consulting a financial advisor reduces both perceived risk and anxiety, helping people make more confident financial decisions.


The role of financial advisors in alleviating anxiety is so significant that researchers have coined the term "Money Doctors" (Gennaioli, Shleifer, and Vishny, 2015) to describe how advisors offer not just financial expertise - they provide comfort and emotional support. Their trust is not built solely on past performance, but on the personal connection and sense of security they offer.


Anxiety plays a crucial role in the advisor-client dynamic. Advisors and institutions that are effective in reducing client anxiety can foster stronger trust, increase client retention, and even justify higher fees (Gennaioli, Shleifer, and Vishny, 2015).


Rest assured that LiLa, our AI financial advisor, does not judge.


At Odonatech, we are committed to creating meaningful and anxiety-free financial discussions. Our AI financial advisor, LiLa, is designed to facilitate conversations about money in a way that promotes openness and trust.


Seeking financial advice should not be overwhelming. With LiLa, we aim to make it easy for everyone to ask for help when they need it, without fear of being judged.


References

  • Gerrans, P. and Hershey, D.A., 2017. Financial adviser anxiety, financial literacy, and financial advice seeking. Journal of Consumer Affairs, 51(1), pp.54-90.

  • Gennaoili, Nicola, Andrei Shleifer, and Robert Vishny. 2015. Money Doctors. Journal of Finance, 70 (1): 91–114.

  • Holthöwer, J. and Van Doorn, J., 2023. Robots do not judge: service robots can alleviate embarrassment in service encounters. Journal of the Academy of Marketing Science, 51(4), pp.767-784.

  • Consedine, Nathan S., Yulia S. Krivoshekova, and Christine R. Harris. 2007. Bodily Embarrassment and Judgment Concern as Separable Factors in the Measurement of Medical Embarrassment: Psychometric Development and Links to Treatment-Seeking Outcomes. British Journal of Health Psychology, 12: 439–462.

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