Anxiety wreaks havoc on our ability to make good decisions.
We all know this from personal experience. When we make decisions under stress, we end up doing things we normally wouldn’t. This applies in all kinds of situations, and is especially true for financial decisions. Anxious people, for instance, are less likely to save regularly. People who face more stress in their lives are also more likely to overspend.
When we fall behind on payments, we are subject to all manner of bad coping strategies. Psychology tells us, for instance, that individuals facing anxiety are more likely to display avoidant behaviors. While this fact is intuitive, it is not reflected in the way we collect from individuals. Instead of recognizing the psychology of anxiety, we double down on brute-force approaches that might even exacerbate the problem.
At our firm, we believe the most successful collections operations will be those that consider the whole human. To that end, we have spent some time exploring the relationship between people’s stress levels and their finances during COVID. We hope that increasingly, creditors will incorporate more of what we know about consumers’ attitude and behaviors into the way they collect, the treatments they provide, and the way they follow up with consumers after the initial delinquency.
As you will see below, the relationship between stress and other aspects of financial life are not always straightforward. It implies that anxiety might affect delinquent consumers in varied ways. These findings remind us that relying on behavioral data in addition to traditional data can maximize the odds that our strategies are correctly addressing consumers’ underlying thoughts and beliefs.
What we know about anxiety during COVID.
As discussed in previous blog posts, RevolutionCredit offers a COVID-19 Financial Health Check that offers customized advice to consumers during these tough times. As consumers have interacted with the tool, we’ve been able to glean consumer sentiment during these challenging times.
Here are some of the things we have learned about consumer’s anxiety, from the obvious to the counterintuitive, and the implications that this might have for collectors.
Consumers with missed payments are much more stressed than other consumers.
We asked consumers to tell us how confident or anxious they feel about their financial situation. Using responses, I am able to compare feelings of anxiety between consumers who have missed payments and consumers with all their accounts in order. Note: nearly 42% of all consumers are behind on payments currently.
Unsurprisingly, consumers behind on their bills tend to exhibit much higher rates of anxiety. But not just any anxiety– extreme anxiety.
On time consumers are 20 points more likely to say they are “somewhat confident.” When consumers go late, rather than falling into becoming “a little anxious”, it seems consumers go directly into the “extremely anxious” category. (Note how the rate of extreme anxiety grows by 20 points for delinquent consumers.) Anxiety, it turns out, is less of a gradient than we might think for late payers. If you are late, chances are you are very, very anxious.
Consider how financial institutions react to other scenarios of extreme anxiety. How do we treat consumers in natural disasters? Typically, when institutions become aware of natural disasters, they approach consumers with personalized messaging and make a greater effort to provide flexibility. It seems that perhaps we tend to underestimate what degree of anxiety late payers are feeling. They are not feeling somewhat anxious– they are feeling extremely anxious. Think about all the situations that can cause a delinquency. What if the consumer is facing a health emergency? If we make special dispensations for natural disasters, wouldn’t it make sense that we should for other kinds of extremely stressful situations as well?
The relationship between income and anxiety seems more complicated than we might think.
Logically, one might assume individuals in lower income brackets are more anxious, while consumers with higher incomes are less anxious. While generally this is true, our COVID survey revealed a couple of unexpected observations that imply segmentation variables in collections might behave in less than straightforward ways. Here are rates of anxiety by income bracket:
1. While lower income is associated with higher rates of anxiety, look at the lowest income bracket, for consumers making less than $25K. They have substantially less anxiety than their counterparts in the next few income brackets. At first glance, my impression was that his bracket contains a higher proportion of young people—college grads or individuals who may not yet be responsible for their own households. This proved true, the lowest income bracket possessed twice the number of individuals aged 18-24 than the rest of the population (13% compared to 7%). Even though these are low income consumers, demographic variables make income a less than perfect predictor of payment performance.
2. The second surprising thing: it seems higher incomes are much more pre-disposed to have more extreme anxiety. Logic dictates that these are accounts where delinquencies are most likely due to sloppy payments, not serious cash constraints. We might be less inclined to believe these accounts need a softer touch from us. We might be more inclined to use transactional accounts with higher income consumers, where we simply encourage them to sign up for autopay. This would be a missed opportunity to acknowledge consumers actual anxiety. As discussed below, this is the kind of opportunity that makes our BackOnTrack powerful.
Women are more likely to be very stressed
I was interested to see how men and women experienced anxiety, and if any differences exist. One complicating factor in our data is that women were more likely to have lower incomes than men. Thus, I proceeded to look at rates of anxiety but adjusted for income differences. (This is to say, the numbers below are modeled assuming the same income distribution for both genders.) I found the differences in anxiousness held, even when we account for income:
While men and women share relatively close odds of saying they would be a “little anxious”, women are substantially more likely to say they are “extremely” anxious.
What does this all mean?
The findings discussed above remind us that the best collections organizations are ones that rely on more sophisticated segmentation models that consider several variables. As we can see, even when two consumers are in the same income bracket, their age or gender may mediate how they experience anxiety, and therefore, how likely they are to avoid our outreach. And, the anxiety across income levels might sometimes surprise us– consumers who don’t seem to need a softer touch might appreciate it the most.
This observation is what we believe makes BackOnTrack so powerful. The BackOnTrack experience begins by lending out a helping hand to all consumers, regardless of their situation, typically by way of a statement credit. Then, once they are inside the user experience, we acknowledge anxiety openly. We address avoidance directly, and offer a behavioral treatment that reminds users to reach out and act, instead of run away from a problem.
Second, collecting behavioral data, such as information about consumers’ anxiety, can be a powerful tool to supercharge whatever segmentation you already have in place. In a previous blog post, our Chief Data Scientist Hutch discussed how consumers’ sense of control, in some ways an inverse of anxiety, can be predictive of how likely they are to have a more prolonged delinquency.
This brings us to the last opportunity BackOnTrack offers. With new, additive behavioral data, we can begin to imagine a new world where collections treatments extend beyond the initial delinquency. We could imagine, for instance, a world where your institution continues reaching out to rehabilitated consumers encouraging them to stay on track by speaking to very specific events in their lives.
Traditional collections continues to perceive consumer anxiety as a factor to overcome. We take the approach that anxiety simply needs to be addressed and acknowledged. The results speak for themselves.
To find out more about BOT, feel free to contact us.