Information overload happens when we try to handle too much information. It chokes our ability to understand issues and make decisions. Finding the right balance can help when saving, investing and making other decisions that affect our money.
Going overboard: swimming in a sea of information
According to research organisation SINTEF in May 2013, around 90% of the world’s total data was created in the previous two years. This helps to explain why we are sometimes overcome by information overload – there’s too much to process.
It’s busy out there… and in here
From price comparison sites to convoluted insurance options, complex utility plans and mobile phone packages, many aspects of day-to-day life mean we struggle to figure out the relevance and accuracy of information. This paper investigates three causes that may lie at the root of information overload for people picking retirement plans: how the information is displayed, the number of options offered and having too many similar options.
The authors assert that those overwhelmed the most by investment decisions are those with the lowest levels of financial knowledge – and so are more prone to picking investment plans which do not suit them.
Watch out for the signals
A danger of information overload is the tendency to ignore weak, but possibly crucial, signals because we are overwhelmed. We may focus on price, but ignore that we are buying an inferior product, such as home insurance which won’t pay out for theft if you lose a front-door key.
We may also be more prone to fall victim to the sneaky practise of drip pricing – where optional (like payment protection) or compulsory (like a tax) extras are added to a bill during the buying process, making it tricky to quickly define the true cost.
It’s also good to be aware of the similar characteristics of choice overload which occurs when we are faced with too many choices. This may cause us to delay making important decisions or not make them at all.
When enough is enough
Individuals can avoid the worst effects of information overload by using a helpful checklist:
Seek clarity Know what you want to find out, then search. If you are unsure of the nature (pricing, limits, risk, etc) of a product, go to the source and ask for clarification.
Find trusted sources Official government sites may be a good place to start or trusted consumer websites.
Be aware of deadlines Establish how soon you need to make a decision. Set realistic timeframes and make a note to “get it done”.
Don’t settle for only the best You may not make the most optimal decision every time, but recognise that sometimes you just need to make an adequate decision – one that is suitable for a problem that needs to be addressed.