Understanding and Improving How Communication Formats Influence Lay Comprehension of Financial Information

Zhang, Danni (2021) Understanding and Improving How Communication Formats Influence Lay Comprehension of Financial Information. University of Southampton, Doctoral Thesis, 218pp.

Record type: Thesis (Doctoral)

Abstract

To engage with financial information and develop sound financial knowledge are crucial for informed financial decisions. While graphic displays have been largely adopted to impart financial information to the public, it is surprising that scant attention has been paid in finance studies to the efficacy of graphs in facilitating information comprehension for lay individuals. Therefore, this thesis presents three original studies that collectively investigate which types of presentation format (e.g., texts, numbers, and graphs) are more efficacious at helping individuals understand financial information and explores the factors affecting such efficacy. To achieve this, two quantitative studies (Study One and Study Two) were conducted via two sets of online questionnaires, followed by one qualitative study (Study Three) that used think-aloud and think-after methods in one-to-one participant interviews. The questionnaires and interviews were specifically designed to address the research questions in each study. Study One focuses on the communication of financial probability information. A nontraditional graphic format – icon arrays – has been largely recommended by health communication studies to improve the comprehension of health-related probability information. However, no study thus far has examined whether icon arrays are effective at helping individuals understand probability in the finance sector. Therefore, Study One investigated the ability of icon arrays used alone to communicate financial possibilities compared to percentages and frequency formats. Surprisingly, Study One found that regardless of participants’ numeracy, icon arrays used alone did not enhance participants’ understanding of financial information. Notably, adding numerical scales in the y-axis in icon arrays compromised the comprehension even more. In contrast, percentages and frequencies appear to be superior in catalysing more accurate financial information comprehension, particularly among participants with lower numeracy.

Study Two addressed the need and investigated the extent to which formats (namely, text-only, graph-only, and text-and-graphs) can assist mortgage novices to better understand mortgage products. In particular, given the frequency of bar charts used in
the financial domain, they were employed for the investigation in the study. Interestingly, this study identified that simply combining texts and graphs (cf. text-only or graph-only) to echo the same mortgage information did not achieve a better understanding for mortgage novices with either higher or lower debt literacy. Moreover, those with lower debt literacy achieved better mortgage knowledge from the text-only format, whereas those with higher debt literacy benefited the most from the graph-only format. This finding strengthens the idea that the benefits of utilising graphs to communicate financial information are limited by individuals’ relevant prior knowledge. Another important finding was that participants’ present preference (i.e., the tendency to overvalue current benefits at the expense of long-term rewards) moderated the influence of presentation formats on the perceived importance of mortgage product characteristics (e.g., monthly repayment). This suggests that graphic displays (cf. texts) may impact on an individual’s propensity towards present preference,
highlighting the potential visual influence on financial information communication.Study Three is motivated by the findings from Study One and Study Two. The study explored how individuals engage with, react to, understand and evaluate financial information when it is presented in different formats. Importantly, the study focused onidentifying what attributes and premises in icon arrays and bar charts may impede recipients from understanding financial information. The verbal protocol analysis
suggests that graphic formats are useful in relaying gist information (i.e., general information) but ineffective in ascertaining verbatim information (i.e., precise and detail information). Importantly, the study identified the factors that impeded individuals from engaging with and developing a sound financial understanding from graphic displays. Specifically, (1) individuals experience greater difficulty and confusion to process and understand icon arrays-represented information in a financial context, (2) without written texts, advanced graphic comprehension is too arduous and error-prone for individuals to generate deeper insights of financial information and precise financial data, and (3) arresting colours (e.g., red) and patterns (e.g., significant tall bar) in graphs can reduce individuals’ attention on less prominent graphic details, which induces disproportionate weighting and affective reactions towards the represented information.

Overall, the thesis’ findings provide valuable contributions to the related body of academic literature. First, it suggests that icon arrays are not effective in communicating financial information, which is different from health communication studies’ suggestion. Indeed, the thesis provides further evidence showing that because icon arrays (cf. number-based formats) are rarely used in the finance sector, recipients are confused and experience greater difficulties processing the format and obtaining financial knowledge. Second, the thesis provides new knowledge that the benefits of using multiple formats to disseminate intrinsic financial knowledge are overestimated. Further, the findings from this thesis provide new insights into what kind of factors in
multiple formats settings could induce individuals' cognitive overload and then impede the processing of financial information engagement and comprehension. Third, the thesis highlights that graphic displays might be detrimental to financial comprehension and, therefore, could elicit poor financial decision-making. Thus, graphic displays should only be employed in the financial context where there is robust empirical evidence of their efficacy, to which far too little attention has been paid by previous financial research. More research is needed to explore the relationship between presentation formats, financial communication, and financial decisions.

The thesis also provides valuable implications for finance sector practitioners. Communicators should be aware that: (1) uncommonly implemented graphic formats may impede information engagement and understanding, (2) recipients’ information capacity and cognitive resources should be given extra attention when imparting intrinsic financial information in multiple formats presentation, (3) the efficacy of presenting graphs alone to impart financial information is constrained, and (4) graphs have visual influences that may unduly bias recipients’ information judgement. Overall, this thesis suggests that the traditional formats – namely, written texts and numerical formats – are still the most effective forms in communicating financial information, particularly among those with lower numeracy and financial literacy.