Armchair Psychologists


Community bankers reflect on what drives customer behavior

By Kelly Pike

Underneath the numbers and anecdotes customers share with their community banker, there is a whole microcosm of individual thoughts, emotions and experiences that shape each customer’s financial outlook and decisions.

Some of these are obvious, such as those customers who save and those who spend. But often these beliefs lie under the surface, hidden from the banker—and even the customer.

But they don’t stay there forever. Community bankers are experts at observing human behavior. As they build relationships, they learn to recognize when rational thinking is overcome by emotion or faulty logic.

Independent Banker asked longtime community bankers with backgrounds in psychology to share their observations on the psychology of money and the role community bankers play in helping people overcome their challenges to make smarter decisions.

Bankers as therapists
“Every single day a good banker can also be a therapist,” says Sarah Cowan, senior vice president and loan department manager at $335 million-asset National Bank of Middlebury in Middlebury, Vt. “There is no question that there is a fair amount of emotional counseling that goes along with relationship banking.”

80 percent of Americans have confidence in their ability to manage their money.
—American Psychological Association, 2015

It’s particularly true for borrowers, says Cowan, who has a psychology degree from Colby College in Maine and more than 20 years of banking experience. She often counsels customers who want to pay off their mortgage to pay off debt with higher borrowing costs first, but they don’t always listen.

“There is a lot of psychological stress from having a mortgage on your home,” she recognizes. “There is no doubt that people consider the psychological benefit or stress of borrowing money, even though they can very well afford to borrow.”

As a lender, Cowan takes that angst into account when evaluating borrowers, preferring them to those who are taking out a loan simply because they want a new house or car.

“I like borrowers to have that angst to a point,” she says. “It tells me that they are probably going to do everything they can to repay that debt.”

Secrecy and shame
But not everyone asks his or her community banker for advice. In fact, many are secretive with their finances for reasons ranging from embarrassment and shame to power and control.

Pat Barnes Wheeler was president and later CEO of $120 million-asset Kentucky Trust Bank in Beaver Dam, Ky., for 25 years before retiring in 2007. She moved back to the small coal-mining town of 2,500 to take over the family bank in 1978 after spending 14 years teaching psychology. With a master’s degree in psychology from Columbia University, she understands why many people are so private with personal finance.

“There is no question that there is a fair amount of emotional counseling that goes along with relationship banking.”
—Sarah Cowan, National Bank of Middlebury

“In a small town, everyone knows everything about everybody. But they don’t know about your financial business, so people guard it with great care,” Wheeler says.

That was true even of small-business customers, who protested mightily when examiners started requiring the bank to collect financial statements from its business customers in the early 1980s. “It took work to convince them we weren’t doing something unusual or sneaky or wanting to know their business,” she says.

Wheeler suspects some protested because they didn’t know how to fill out the forms but wouldn’t tell her—a common theme, as many customers are uncomfortable admitting they don’t know everything about money. Perhaps that’s why community bankers often help customers with their money issues by saying no. Wheeler once turned down a relative who was passionate about opening a music store in a tiny town that couldn’t support it.

“Any rational person looking at that situation would think this is not an appropriate place to put that store,” she says. “They were making an emotional mistake.”

The psychology of fraud
Bank presidents and lenders aren’t the only ones who have to turn down customers who aren’t thinking clearly. Alisha Smith, a teller at $475 million-asset First Harrison Bank in New Albany, Ind., who studied sociology at Indiana University Southeast, has similar problems when customers come in trying to cash lottery scam checks. Customers receive a letter saying they won a lottery; they just need to cash a check to cover taxes and fees and wire the proceeds to get their winnings. When she turns them away and explains it’s a scam, many of them get angry.

“They just want to believe they’re getting a check in the mail for no reason,” says the longtime teller.

Maybe that’s because of optimism bias, also known as denial of risk. Studies have shown that people believe they are less likely to have bad things happen to them, such as get into a car accident or get scammed, than the average person—even though they are an average person. Others just choose to believe what they want, ignoring evidence that contradicts their beliefs.

Some suffer from shortsighted financial thinking. For instance, some construction finance borrowers feel like they’ll save money using a do-it-yourself approach instead of hiring a contractor, Cowan says. A few months into the project they realize they don’t have the necessary skills and are behind schedule. Others refuse to hire accountants whose work could pay for itself.

Similarly, Smith encounters elderly customers who refuse her suggestion that they put another name on their account. They don’t want to consider the possibility that something could incapacitate them, and they are hesitant to cede independence.

71 percent of Americans say that having more money would make them happier.
—American Psychological Association, 2015

“I’m doing a basic type of job, but when it comes to money, people equate that with power and control,” she says.

Money and marriage
Nowhere is the importance of financial control more obvious than with spouses. Some couples keep their money in separate accounts, some have joint accounts, and some use joint accounts but act as though they are separate, says Smith.

“They’ll have joint accounts, but when I wait on them, they don’t act like they know what the other one is up to,” she says. “He comes in and moves it around and doesn’t know that his wife just came in and moved it around.”

Other times one person handles all the money and the other half is oblivious to how much the couple makes, spends, saves and owes. When the couple hits financial difficulty, the money manager might hide the problem because she feels shame or embarrassment. Those who’ve lost jobs often feel a lost sense of self-worth.

“They don’t want to disrupt the relationship by having to say, ‘I missed three mortgage payments, we’re being foreclosed on,’ so they end up with ostrich-putting-its-head-in-the-sand syndrome,” Cowan says.


It’s not just telling their spouse. People facing financial difficulties rarely speak about it—even though it’s obvious to their banker. “A customer having a serious problem like using alternative financial solutions or check cashing will not engage in conversation with you other than to ask, ‘Is it OK if I leave my account like this for a day or two?’” says Smith. “They make the transaction with the teller as short and sweet as possible.”

Some customers might stop talking to their banker altogether, which is what happened to Wheeler after she loaned her college roommate money for a project that went bust.

“I’m doing a basic type of job, but when it comes to money, people equate that with power and control.”
—Alisha Smith, First Harrison Bank

“Certain people wait too long and make one bad choice after another until they are really in a hole and then never speak to you again,” Wheeler says. “It’s hard. Money can make people do strange things.”

Yet community bankers have become adept at detecting when something is not right. Once, Wheeler noticed a longtime customer acting irregularly and then his shop burned down. He was later convicted of arson. Another time a prospective customer came in wanting to open a grocery store with a partner who’d been convicted of fraud. Wheeler warned that the partner was dangerous and tried to talk the man out of the deal, but he went ahead with another bank—only to be found dead in a coalfield strip pit one year later.

Irrational thoughts
Sometimes whole communities fall victim to irrational financial thinking, such as the case of a union that refused to consider the financial situation of the owners. Years ago a town in Wheeler’s market convinced a woven material factory to open shop, creating 75 jobs. Within a year, the workers all went on strike—something the coal miners often did for long periods—and the factory folded within three years, leaving several local banks to write off several hundred thousand dollars in unpaid bonds.

“It was a case where blindness or, I think, ignorance of how the world really works really hurt the community,” she says.

Fortunately, most financial decisions have much lower stakes. Cowan has seen borrowers wait for mortgage rates to hit 3 percent before refinancing, wasting money paying a mortgage with a 5 percent rate for months waiting for a rate that may never come—and losing a chance to lock in a 3.5 percent rate that would still be a big improvement.

38 percent say that money makes them tense.
—American Psychological Association, 2015

Sometimes Cowan can help a customer reexamine his approach and other times she can’t. But she’s experienced enough to know when she’s got a shot and when the baggage is too great to be moved.

In the end, she’s a pretty good therapist.

Gamifying Savings

In Davenport, Fla., CenterState Bank is experimenting with goal-oriented savings accounts that motivate potential savers by making savings more like a game. Instead of paying interest on an ongoing basis, the account pays a bonus if the saver hits a certain goal.

Someone saving for a home over a five-year horizon, for instance, might get a 2 percent reward when he hits his goal, says Chris Nichols, chief strategy officer at the $5 billion-asset community bank.

Inspired by another large bank’s popular virtual wallet and expecting the account to be popular with millennials, CenterState also is considering interactive details like a dashboard with achievement indicators that celebrate savings milestones—perhaps with a fun reward like a Starbucks gift card.

“If you structure products the right way and market it the right way, you end up with more profitable accounts for the bank and end up engaging customers to build their balance by solving a problem for them,” Nichols says.

Kelly Pike is a writer in Virginia.