What you don't know you don't know

• HDFC
• 19 May 2017
• Blog Details,Blog_Listing

HDFC, Tester

Think of how you buy something that requires a bit of careful choosing, say clothes, or footwear. You go to a shop, look at a range of options, try out a good number of them, make your choices, and then go out and order them online from your smartphone. Of course, there was also an older way of shopping but that's now said to be dying out.

In any case, the reason why such an exercise works is that you have some criteria on which you can judge the options available. Depending on what you are buying, these could be subjective like taste or colour or smartness, or they could be objective like price or quantity or some other specification, as in the case of gadgets or automobiles. In either case, you think that you have made the right choice, according to whatever criteria that looks most relevant to you.

Unfortunately, buying financial products--whether for investments or insurance or something else--doesn't quite work out like this. Firstly, relatively few people can accurately map what they desire from a product to a realistic chance of that product having those characteristics. Secondly, even if the product has the characteristics, evaluating them is often too dependent on the buyer having background knowledge, a mental model for understanding what goes on inside the product, as well as the scepticism to resist the hype that inevitably surrounds the product.

The worst part is that the realisation that one had made a bad choice often comes only after years, if then. There are plenty of people whose investment and insurance choices have done badly but they are only vaguely aware that it could have been better. Or even if they are, they don't really understand what went wrong. The impact that these choices have on people's lives are huge, and yet they get far less attention than the choice of a mobile phone or a pair of shoes. Unfortunately, there's no easy way out. Some people will bootstrap their knowledge and learn, but the ones who need a solution most don't even know it.