Managing your personal finances

What does the future have in-store for finance? In this bite-sized lecture, Professor Carsten Murawski from the Department of Finance and co-director of the Brain, Mind & Markets Laboratory explains why managing your personal finances can be so tricky and how technology is set to help.

If you’ve ever worried about your personal finances, struggled to live within your means or not quite understood how superannuation works - you’re not alone.

Two in three Australians worry about their personal finances on a monthly, weekly or daily basis. While, about half of all Australians rate their financial well-being as moderate, low or very low.

There are many reasons that keep us from improving our financial wellbeing. One key issue is many people feel overwhelmed by their personal finances, explains Professor Carsten. Something that isn’t too surprising, as finance can be extremely complex.

Why can managing your personal finances be so complicated?

“One aspect that makes finance so complex is an abundance of choice,” says Professor Carsten.

Think of private health insurance, in Australia you’d have the opportunity to choose from more than 3,000 different policies offered by approximately 30 different providers. Superannuation offers even more choice with tens of thousands of investment options.

“It's easy to see that people may find it hard to find the options that are most suitable for them. People love choice, but they get overwhelmed quickly when confronted with more than a handful of options,” explains Professor Carsten.

Why is selecting the right financial option difficult?

Let’s take a look at superannuation. When selecting the shares that you’d like to invest in, you’re faced with many variables. Shares have an array of features that can be complicated to analyse with payoffs that are often highly uncertain. Not to mention, there’s tens of thousands of shares to choose from.

How do we expect people to go about managing their superannuation or choosing private health insurance? “These tasks can be extremely difficult. What's important is that they are not difficult because of a lack of knowledge about finance, but because they are mathematically hard. In fact, many problems people face when managing their personal finances are harder than tracking military-grade encryption. On the one hand, we constantly rely on the fact that no one will be able to correct the encryption we use when making online banking transactions, but on the other hand we expect everyone to solve much harder problems every day when managing their personal finances - that's strange isn't it?” says Professor Carsten.

How will technology help us manage our finances?

“We believe that technology will play an important role in helping people to navigate their personal finances and to improve their financial well-being. We envision that in the future every person is going to have their own personal financial assistance in their smartphone or smart watch,” explains Professor Carsten.

“New technologies such as AI (artificial intelligence) may make this possible in a few years from now. In our research, we explore how we can combine insights into human behaviour with the capabilities of new technologies to build new tools that help people make better decisions and improve their financial well-being.”

“Finance has always been about technology. If you look back, problems that people were facing in finance often stipulated technological innovation, which in turn advanced finance, and it's no different today. At many points in the history of civilization technological innovation transformed finance and significantly improved people's lives. We believe that right now we're at the cusp of, yet another such transformation and we want to make sure that our students are equipped to become leaders of this transformation.”