Should investing be more emotionally driven?

Knowing that humans aren’t solely rational actors, emotional analytics is a branch of behavioural economics which explores how savers feel about using a product or service.

Luckily, millennials are clear about what they look for. For example, 47% of US millennials actively seek diversity and inclusion when looking for a job, and 44% of our Mastertrust members[1] said that levels of diversity in a company were either very important, or important, when deciding on where to invest their money.

When asked what the most important steps an asset manager can take to increase their contributions by Franklin Templeton, 45% of millennial respondents gave the answer  ‘responsible investing’.

And millennials are also clear on how they would like these goals to be achieved. Over 50% sought active engagement on climate change, while over 45% cited animal welfare and 40% action against plastic or excess packaging. Savers are prepared to put their money where their mouth is, with 51% saying that responsible investing should be built into the default fund. In a survey of Legal & General’s Mastertrust members, nearly 19% would be happy to pay more to invest in a fund which was actively making a positive contribution to society – regardless of performance. If returns are better, this number jumps to 62%. Nearly 60% agreed that if they knew their pension was making a positive social impact, it would make them feel more positive about their employer.

But that’s not all that matters. Investing responsibly came in at number two of the most important attributes (listed by 29% of millennials) in Franklin Templeton’s survey. But far and away the most important attribute was the employer’s contribution, listed by 42% of respondents. This shouldn’t come as a shock as there has been little sign of a jump in opt-out rates since 2019's hike, which raised both the contribution rate for savers and also what they could expect from their employer.

So, taking account of people’s emotions, their preferences and their cultural context is critical to understanding their investment choices, but implementing them has very practical consequences both for savers and the world around us. In fact, an emotional analysis should be central to building default strategies and solutions which suits savers’ lifestyles across a longer period of time.

[1] of all ages, but of which millennials comprise over 40%