Consumer Financial Decision Making

Lesson Transcript
Instructor: Endya Perry

Endya has taught corporate training courses and led seminars in various business topics. She has a master’s degree in business administration.

The three major consumer financial decisions are savings rate, use of credit, and spending patterns. In this lesson, you'll learn about the cultural dimensions and marketing communication types that influence these decisions.

Consumer Financial Decisions

Martin works within the marketing department of an international financial institution. He created a broad marketing campaign with the goal of impacting consumer financial decisions. The campaign was not successful. Martin sought guidance from his co-worker, Jill. Jill agreed to work with Martin on this initiative. She told him that it's important to understand the financial decisions consumers make. In addition, businesses must also understand the elements that impact those decisions. This is what will help them to develop effective marketing plans that will yield results. The three major decisions that Martin and Jill are focusing on are savings rate, use of credit, and spending patterns.

Let's define these three terms before moving on:

  • Disposable income is the amount of money remaining after taxes are paid. It's the amount of money that a consumer would have to either spend or save. The consumer's savings rate is the portion of their disposable income they set aside to save.

  • The manner in which a consumer borrows money to purchase items is referred to as credit usage. Buyers may use credit cards or may obtain a loan in order to purchase items. Borrowing money, through credit cards or loans, often requires additional money to be paid through interest and fees.

  • The most common way in which consumers spend their money, including types of purchases and frequency, is called consumer spending patterns.

Jill and Martin began a journey together to learn about and determine the factors that impact these three important financial decisions. They first examined cultural dimensions, using Geert Hofstede's theory of cultural dimensions that outlines six facets of culture that may impact decisions: power distance, uncertainty avoidance, individualism versus collectivism, masculinity versus femininity, long-term versus short-term orientation, and indulgence versus restraint. Jill and Martin decide to focus on long-term versus short-term orientation, uncertainty avoidance, and masculinity versus femininity. Let's take a closer look at each of these dimensions:

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  • 0:03 Consumer Financial Decisions
  • 2:10 Long-Term vs…
  • 3:01 Uncertainty Avoidance
  • 3:40 Masculinity vs. Femininity
  • 4:40 Marketing Communication Types
  • 5:39 Lesson Summary
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Long-term vs. Short-term Orientation

The long-term orientation versus short-term orientation cultural dimension describes the predisposition a society has towards past, present, or future benefits. Long-term oriented societies are focused on future benefits and qualities, whereas those that are short-term oriented are motivated by the benefits of the past and present.

Since short-term oriented cultures prefer instant gratification, the savings rate within these societies will be lower. Those that are long-term oriented would save more to reap the benefits in the future. They would also spend less and use less credit.

It is important when developing marketing strategies to differentiate the tactics and messaging based on the consumer's long-term or short-term orientation. Jill and Martin begin to develop separate strategies for short and long-term oriented consumers.

Uncertainty Avoidance

The uncertainty avoidance dimension explores people's comfort level with uncertainty and ambiguity. Those with a high level of uncertainty avoidance will sometimes avoid risk. They will also make decisions with the goal of making the future as predictable as possible.

As such, those with a high level of uncertainty avoidance have a higher savings rate, as they save to allow for more control over future circumstances. They will also use less credit and have a lower spending pattern. Jill and Martin leveraged this knowledge to develop specific tactics for those with a high level of uncertainty avoidance and developed separate tactics for those with low levels of uncertainty avoidance.

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