Experts vs. Friends: The Definitive Guide to Who Influences Us and Why
Perceived level of investment is a key factor in who we trust when making decisions.
Let’s say for a moment that you have a decision to make. This shouldn’t be too difficult, as we make hundreds of decisions (consciously or otherwise) every day. It can be a life-altering decision, like selecting a marriage partner, a job, or a college major; or perhaps something more simple, like picking a restaurant for dinner, or watching a movie at the theatre.
Now, let’s pretend that before you can make the decision, you need some advice, some additional input from an external source. For example, if you’re new in town, or on vacation, how often do you consult online reviews or friends’ opinions before you do anything? Just last week, my wife and I took a short trip from our home in Utah to Manhattan, where we were completely reliant on friends in the area, Yelp, and Urbanspoon for where to eat, Google Maps for the fastest and cheapest ways to get around, and travel blogs for things to do.
When it comes to choices that we’re not fully comfortable making on our own, we normally turn to one of two resources for additional help: the experts whose job it is to know everything about the subject of our decision, or everyday people (friends, family, and other non-experts) who have already made similar decisions.
But who do we trust more in a given situation, and is there a pattern (conscious or otherwise) to our thinking? Because you have to admit, when venturing into the unknown, we need a guide. Sometimes we value the opinions of experts over our friends, sometimes the opposite, and sometimes both.
To answer these questions, we ran a survey posing 20 hypothetical decisions to 500 people. In each case, the respondent was required to complete a statement (e.g., “When deciding to try a new restaurant, I am more likely to trust . . .”) by selecting either a peer or an expert.
Respondents were asked to trust either a peer or an expert in the following situations (in no particular order):
- Choosing a new restaurant
- Determining romantic capability
- Seeing a movie at the theatre
- Choosing a vacation destination
- Purchasing goods and services
- Picking a fantasy football lineup
- Choosing a career
- Seeking relationship advice
- Voting
- Doing business with a company
- Making sense of current events
- Buying a personal computer or smartphone
- Choosing a college major
- Applying for credit cards
- Buying a home
- Selecting a car insurance provider
- Buying or leasing a vehicle
- Choosing a diet/exercise plan
- Getting advice on a loan
- Seeking financial advice
Insights
After analyzing these results on a relative scale (meaning, how they relate to one another), we found that the average person’s bias toward or against an expert or a peer is dependent upon a number of factors (in no particular order):
- Relative Size of the Investment
- Length of Our Decision’s Consequences
- Relative Size of the Knowledge Gap
- Level of Perceived Fun Involved
- Decisions Affecting Our Health
- The Power of Word of Mouth
- The Power of Social Media
- Trustworthiness of the Expert
- Trustworthiness of Our Peers
In short, when our decision is high-investment (of time, money, or energy), has lengthy consequences, or presents a sizable knowledge gap between us and the expert, we tend to lean on the expert. Meanwhile, when our decision involves more short-term consequences and fun, or relies heavily on word of mouth, we trust our friends. Not surprisingly, choices of medium consequence that rely on our ability to successfully navigate social media require more proportional input from both sources.
Insights for Businesses
Depending on the industry, customers may be more likely to trust either their peers (via word of mouth or online reviews) or an expert (via qualified third-party endorsements). Businesses need to recognize this distinction, and which consumer preference pertains to their industry.
For example, industries that involve low-investment decisions (retail, restaurants, travel services, etc.) would do well to publish as many real user reviews as possible, as this will generate the most trust. Meanwhile, industries that involve high-investment decisions (finance, real estate, health and wellness, etc.) must do all they can to provide qualified, third-party expert endorsements to generate more trust.
Insights for Everyday People
In situations where we’re more likely to trust an expert (finance, real estate, health and wellness), an appropriate amount of skepticism can actually be a good thing. We shouldn’t always be so eager to trust an expert, simply because he says he’s an expert. Educate yourself to look for red flags unique to the industry. For example, a common thread is to place less trust in experts who promise or guarantee fast results with minimal effort—attempting to pass of a high-investment decision as low-investment.
For a more detailed breakdown of each scenario, read below:
The Smaller (or More Fun) the Investment, the More We Trust Our Friends
Some decisions require a relatively small investment of time, money, or effort. These aren’t major life-altering decisions with long-term implications, which is why we’re more inclined to consult more informal resources. These include everyday decisions, or decisions we make seasonally:
Choosing a New Restaurant: Peer 88.34%, Expert 11.66%
According to a 2013 study from Long Range Systems, LLC (LRS), the average wait time of most restaurants is between 10 and 30 minutes. And while actual eating time varies widely, it’s safe to assume that we rarely take over two hours to complete a meal at an average restaurant. So we can safely classify choosing and eating at a restaurant as a small-investment decision.
The question of where to eat—an unsolvable enigma that has been plaguing couples for centuries—can finally be laid to rest with one simple answer: ask a friend. The success behind sites like Yelp and Urbanspoon relies heavily on this theory; rather than promoting a bunch of professionally written reviews by bona fide food critics and restaurateurs, they publish reviews from people who have actually eaten at the restaurants, because they know that’s the opinion that most people will trust—word of mouth.
Determining Romantic Compatibility: Peer 85.66%, Expert 14.34%
When determining romantic capability, respondents could either trust their peers, or a professional dating service or compatibility test (the expert). An overwhelming majority chose to trust their friends, again, likely because of the small investment.
Online Dating Magazine columnist James Houran, Ph.D. points out that effectively leveraging professional dating services or comprehensive compatibility tests requires a large investment of energy, time, and money: “The decision to use [a compatibility test] depends on your particular personal goals and even your mental stamina.” These include whether you are looking for something long-term, or a one-night stand; have realistic expectations; have the money to invest; have the time and attention to research a dating service; have the mental and emotional strength for it; and have the patience for the right outcome. A significant portion of singles avoid these tests because they would rather see a potential partner in-person first—first impressions require a much smaller investment, and are usually more accurate.
We tend to lean on our friends’ opinions of our romantic compatibility with a potential partner because of the short turnaround time; we receive immediate feedback and validation on our decision when we ask our friends. One study from the Journal of Family Psychology concludes that peer opinion is one of the major determining factors in the success or failure of a relationship. As relationship writer August McLaughlin points out, friends can do things that relationship tests simply can’t, like “spot red flags you’re unable to see due to those punch-drunk, falling-in-love hormones that tend to cloud our thinking.”
Seeing a Movie at the Theatre: Peer 84.31%, Expert 15.69%
Despite the fact that movies are getting incrementally longer, and ticket prices are also crawling upward, the overall investment of going to the theatre to see a movie is relatively small: a couple of hours, for a little over $8.00 per person. Because the experience of going to see a movie at the theatre isn’t often life-changing, we most likely rely on friends who have seen the movie to inform our own decision.
One South Korean study measured the impacts of both word of mouth (WOM) and critical reviews on a given movie’s weekly box office revenue. Central to this study is the hypotheses that the greater the volume of everyday people talking about a movie, the higher a movie’s weekly box office revenue. Analysis of the data revealed a positive correlation between WOM volume and weekly box office revenue. Meanwhile, the volume of critical reviews (from professionals) had no significant impact on weekly box office revenue. This disparity suggests that people are more likely to spend money on movie ticket when more of their peers are talking about the movie; critical reviews have less influence on those decisions.
Most of us go to the movies to enjoy ourselves, not necessarily to critically analyze the movie. Simply put, if our friends like it, we probably will too—no matter what the experts say. If you’re like me, you’re less likely to believe movie trailers that quote some bogus source stating it’s “the number one movie in America!” And if you recall the piece I wrote on Suicide Squad, I did not even see the movie until a trusted friend told me she enjoyed it in spite of all the negative press.
Choosing a Vacation Destination: Peer 78.50%, Expert 21.50%
Ostensibly, selecting a vacation destination is a much higher investment than watching a movie or picking a restaurant: vacations are expensive, and can be lengthy. They require planning. They often come with an healthy dose of stress to boot. So why do we rely on peer opinion for such a large investment? Because leveraging the experience of our personal network can effectively lower the investment; learning from a friend’s experience can lower the time and money you spend on the vacation, which then can lower your stress.
TRAVELSAT© Competitive Index conducted a survey to determine which factors had the highest influence on a person’s travel decision. The survey was conducted among over 15,000 international tourists visiting a travel destination for the first time. Surveyors discovered that nearly 40 percent of respondents chose a travel destination based on the recommendation of a friend or family member—more than a web search, more than special offers, and nearly five times more than a recommendation from a professional travel agency!
These results should point to some very clear objectives for travel agencies and travel destinations alike, because everyday people care less about promotions and deals or critical acclaim. They care most about what they’re friends think. As TCI Research CEO Olivier Hentry-Biabaud puts it, “destinations need to first make sure they delight their visitors today if they want to recruit more visitors tomorrow.”
Purchasing Goods and Services: Peer 72.19%, Expert 27.81%
Though not as overwhelming a majority of our respondents voted “peer” when it comes to selecting goods and services (as opposed to movies and travel destinations), nearly 75 percent did, and it’s important to understand why.
In this instance, the large disparity between expert and peer preference has less to do with the level of investment or fun (though, these do play a role), and more to do with the fact that we as consumers are, as an an article from Social Media Today puts it, “naturally suspicious” of anything that comes off too salesy or promotional. The article goes on to say that “social media is very effective when it comes to convincing buyers especially when they see their friends and family have bought a product. It is because they are being influenced by someone they can trust.” [emphasis added].
BigCommerce took things one step further by analyzing consumer behavior across several ecommerce sites to determine what online shoppers value most when making purchasing decisions. Of those individuals polled, 81 percent said that “posts from their friends directly influenced their purchase decisions.”
In essence, we couldn’t care less what companies have to say about their own products and services; the true burden of proof is on our friends’ experiences.
Picking a Fantasy Football Lineup: Peer 66.54%, Expert 33.46%
With the start of the 2016–17 NFL season, chances are you’ve already drafted your fantasy football team, or you’ve at least heard about fantasy football. For those of you who don’t know, fantasy football involves users selecting various NFL players to fill positions on a single team, then awarding points to those players based on their actual weekly performance. Last year, the projected total number of fantasy football users topped 75 million! And users range from the casual office worker who joins the company league, to the fanatics who throw down real money to compete for cash prizes.
The survey asked respondents who they would trust more when selecting a fantasy football lineup: a friend, or a fantasy football expert.
Capturing the wide-reaching level of investment among fantasy football users (and non-users) is difficult to do with such a simple question; however, the results of a peer-leaning bias among our 500 respondents did reveal some interesting insights into how the average fantasy football user approaches the advice of fantasy football experts—that is, with measured distrust.
According to several Reddit conversations on the matter, some of the most dedicated fans attribute their lack of trust for fantasy football experts to the following:
- The NFL itself is unpredictable; there are too many factors at play (injuries, conditions, fatigue, etc.) to lay too much stock in experts that claim to predict individual player performances.
- Experts have their own biases for/against certain players.
- Many experts use their platform (television, podcast, etc.) for entertainment in leu of analysis.
- It only takes one bad expert pick for a vested fan to lose trust in that expert.
Dedicated users place a lot more stock in themselves and their peers; they do on occasion consult expert opinion, but almost always with a grain of salt. Casual users, on the other hand, don’t care enough about fantasy football to even consult the experts; they’re usually more willing to trust a fanatic friend, because to them, fantasy football is purely a social experience.
With Medium-Term (or Semi-Serious) Consequences, We Weigh Experts and Friends More Evenly
Unlike the short-term choices in the first group, this group reflect a higher and more serious level of consideration; they are more forward-looking, and tend to imply a course of action that will endure for at least a few years. Granted, implications from these decision categories don’t often last a lifetime, but they do last long enough (or have impacts significant enough) to require a greater portion of expert input than say choosing a vacation destination:
Choosing a Career: Peer 62.74%, Expert 37.26%
You don’t have to search hard to find a cornucopia of blog posts detailing “The Top __ Factors to Consider when Choosing a Career.” Nearly all of these factors have something to do with either your personal aptitude (strengths, background, education, preferences, etc.) or the nature of the job itself (pay, industry, work-home balance, etc.). While these articles are informative, none of them provide insight into “The Top __ Opinions/Resources to Consider when Choosing a Career.”
Along with our own results, studies suggest that age plays a major role in determining a person’s trusted source for career advice, i.e., the younger the respondent, the more likely he or she would rely on family, friends, and peers (“someone with a successful career” as per our survey) for career advice. The majorities of academic studies surrounding career influences suggest that parents especially play a major role in their children’s career choices. Meanwhile a survey conducted among 16,000 college-age millennials, confirmed that (at least among the surveyed demographic) “the best source for information when looking for a job is . . . those who have worked or are still working [for a particular employer].
However, among older respondents, the shift toward expert opinion becomes more noticeable. This is likely because the older you get, the less influence your parents have over your decisions. Another reason for this trend could be explained by the relative level of investment for different age groups; to a 40-year-old seeking career advice, the level of investment is much higher than it is for a 20-year-old in the same boat, because the 40-year-old has less time to spend considering multiple options and statistically more debt. For the 40-year-old, seeking advice from a career consultant or other professional service makes more sense because the stakes are likely higher.
Seeking Relationship Advice: Peer 61.30%, Expert 38.70%
Wait! Why is relationship advice a nearly 60/40 split, when “Determining Romantic Capability” is roughly an 85/15 split? Again, the difference is due in large part to the perceived level of investment on the part of the respondent. Determining romantic capability implies a low level of investment (asking your friend if you think the guy you’re dating is right for you); seeking relationship advice, on the other hand, implies that the respondent is already in a relationship and needs advice on maintaining or improving that relationship. Simply put, if you are seeking relationship advice, your goal (and therefore your investment) is much more long-term—and in some cases will require the aid of an expert.
In most cases, people seeking relationship advice will still go to a peer (a friend or family member), likely due to the high investment (money, time, emotion, stigma, etc.) of seeing a therapist or other relationship professional. Rhonda Milrad, relationship therapist and Founder/CEO of Relationup.com, conducted a survey asking respondents who the last person was from whom they sought relationship advice. The results suggested that “80 percent of men sought out advice from close friends,” while roughly 83 percent of women sought either close friends or female family members for advice.
Our results, however, were not so skewed. So, why the difference? The disparity can be explained by the phrasing of the question; Milrad’s survey studied its respondents’ previous actions, but our survey asked what people would do in the future. It implies that nearly 40 percent of people are willing to seek professional help if given the option, even if the high investment deters most people from actually doing so.
Voting: Peer 60.87%, Expert 39.13%
The underlying factors that influence voter behavior have been the subject of social behaviorists and political scientists for decades—and the results of this survey in no way attempt to predict how people will vote, or oversimplify the scope of factors influencing a single voting decision. That being said, there are two major influences at play here: a person’s social environment (the peer), and the news/media that person consumers (the expert).
According to Tamara Avant, Ph.D., department chair for Psychology at South University–Savannah, social pressure can greatly influences a person’s voting decision: “social pressure can come from many sources, most notably parents, friends, and romantic partners . . . even employers and religious leaders can impact our political decisions.” Meanwhile, a course from Study.com suggests that while some voters base their decisions strictly on the issues presented them by the news, most base their decisions on factors not directly tied to the issues—the voter’s social identity and the political party affiliation that “most influenced their childhoods.”
Avant also identified news and media coverage as likewise having a significant impact on our political decisions; however, that does not necessarily mean we trust only the media to help us make informed voting decisions. In fact, overall trust in the media is at an historic low—particularly among those under the age of 50. This is because we hold news outlets to a much higher standard than we do our peers. According to the American Press Institute, a news outlet’s accuracy has the greatest impact on its trustworthiness, particularly regarding politics.
That trust in the media overall is low comes as no surprise; but when it comes to particular political pundits or programs that we do trust, the story is a little different. A 2014 survey conducted by Brookings and the Public Religion Research Institute suggested (not surprisingly) we tend to trust news sources that reaffirm our own beliefs.
As it is with our peers, we look for news sources that resonate with our own beliefs. And because we live in a media-saturated environment, the investment required to tap into a “trusted” news source is almost as low as simply asking a friend who we should vote for.
Doing Business with a Company: Peer 60.20%, Expert 39.80%
As mentioned before, we as consumers are naturally suspicious and distrustful of the companies we encounter online. This can be for a number of reasons (I’ve counted a lack of online transparency among them) and because the scenario of “doing business with a company” implies a more involved relationship (and higher investment) than the one-time purchase of goods and services, we’re more inclined to take expert opinion into consideration.
A study conducted among a sample of 606 Saudi citizens living in Saudi Arabia measured the respective impacts of social influences and third-party endorsements on consumer trust. (The study was framed in the context of ecommerce companies, but more general conclusions can be drawn.) Over 81 percent of respondents said they would do business with a company at the recommendation of a family member; 73.8 percent at the recommendation of a friend; 83.3 percent if the company belonged to a group of well-known companies; and finally, 57.1 percent at the endorsement of a third party.
These results, along with our own, reflect the power that third-party expert endorsements can have on a person’s decision-making process. In an article by business resource Inc.com, building relationships with unbiased third-party experts is one of the most effective strategies a company can implement for garnering trust among everyday people. Third-party endorsements can not only increase a brand’s credibility, but also give the company access to marketing channels previously unattainable, like television. They’re not make-it-break-it endorsements, but they do have significant influence.
However, it’s also important to recognize that third-party experts are (or should be) held to a higher standard than family and friends. In certain scenarios, we tend to trust experts more than we trust our friends and family, accepting their credentials at face value. As will be shown later, this can be a dangerous approach; we cannot treat expert opinion with the same low-level investment as we do peer opinion.
Making Sense of Current Events: Peer 50.39%, Expert 49.61%
At last, we reach the vertex of the survey: when it comes to making sense of current events, our respondents are just as likely to consult their peers as they are an expert (in this case, a professional news outlet or publication). But didn’t this piece just make the case that fewer people are trusting the news than ever? How it is possible that, at least in our sample, they are given almost exactly the same weight?
This questions dives deeper into the point made previously about the impact of media saturation our voting decisions. Social media in particular bridges the gap between peer opinion and expert-produced news, because it is the platform most of us tend to refer to for both. One study cites social media’s impact on our involvement with current events: “One of the main findings of this study,” says Anne Oeldorf-Hirsch, assistant professor of communication at the University of Connecticut, “is that engagement in news stories through social media requires discussion with friends on the site. Sharing the story does not increase involvement beyond just reading it on the original news website. Increased involvement depends on valuable feedback from friends.”
In the world of social media, the level of investment required to consult a friend versus a professional publication for information on current events is almost exactly the same.
Buying a Personal Computer or Smartphone: Peer 43.73%, Expert 56.27%
While we’re significantly more willing to trust our friends over the experts when it comes to purchasing goods and services in general, we certainly place more emphasis on expert opinion when it comes to choosing our personal computers and smartphones.
One 2016 study weighed the influence of various factors on the smartphone-buying decisions of Nepalese youth. While results of the study overwhelmingly indicates “better features” as being the most influential factor in a consumer’s smartphone purchase, the results revealed similar findings to our own: consumers weigh expert reviews and peer influences almost evenly, but give a slight edge to expert reviews.
This distribution is likely due to the nature of the industry. Technology poses a larger knowledge gap between experts and consumers, and in order for consumers to make a more informed decision, they’re likely to invest more time and energy in researching available options. While we place a great deal of trust in family and friends when it comes to high-involvement products (meaning products we use everyday and in public), we are most concerned with price and technical features. And for that, we need to weigh expert opinion against the experience of our friends.
Putting more stock in expert reviews isn’t a bad thing, especially when we have no idea where to start, but we should also realize that experts reviewing smartphone and personal computers may have very different priorities than the average consumer. For example, while an expert may laud the craftsmanship and material that went into the construction of a smartphone, the average consumer really only cares about its functionality. And since experts don’t necessarily have to pay for each smartphone unit they review, they’re less likely to be as sensitive to price as the average smartphone consumer.
Choosing a College Major: Peer 43.57%, Expert 56.43%
While we can’t deny the role parents, siblings, and friends play in our development, when it comes to selecting a college major, their opinion is not enough to significantly influence our decision. Not to say that these opinions are not taken into account—clearly the survey suggests that they are—but consider the situation most college students find themselves in when selecting a major: they are often out of the home, and away from parental influences; they’re in a research-heavy environment, forced to weight their own aptitude against the offerings of the various colleges on campus.
College represents an important step toward independence from parental influences, it’s true; but one reason why this category is not overly favorable toward expert opinion is because, in many cases, parents are funding their child’s college experience (though this number is steadily decreasing)—effectively becoming a stakeholder in the child’s major selection.
And similar to smartphones and personal computers, college majors are composed of varying features: length and difficulty of program, skills taught, job availability and placement, prospective salary, prestige, and other market factors. And just like we do with smartphones, a college student’s major of choice can change over time as that person develops. I myself changed majors three times before I landed on English, and my choice certainly wasn’t so much dependent upon what my family, friends, or wife (bless her) said, as it was my experience with faculty and advisors, and what I felt each program could do for me.
Mounting student debt is another powerful factor that might influence college students to take a more measured approach to their major. Students want to find majors that will best help them pay off their student loan debt, which requires a bit of financial literacy (something, as the survey shows, we desperately need expert opinion on).
Applying for Credit Cards: Peer 39.61%, Expert 60.39%
It is easier to consult an expert resource on which credit card is best than it is to ask friends and family because everyone’s financial situation is different. And because Millennials in particular are showing a growing skepticism toward credit cards (65 percent of them don’t even own a credit card for fear of getting into debt), the knowledge gap between the average consumer and the factors influencing credit and credit cards continues to grow.
Although the survey shows that people are almost as likely to consult a peer about the best credit card to apply for as an expert, this widening knowledge gap requires a higher investment from decision-makers (more energy and thought is required for an informed decision)—and the demand for qualified experts increases.
As evidence of the increasing knowledge gap, take a look at this graph from Google Trends, a tool that measures the interest in a given search term over time:
Since 2004, the number of worldwide searches for “which credit card is best” has skyrocketed, indicating that people simply don’t know; they’d rather ask Google in the hopes of being referred to an expert resource than ask a friend.
Visa recognizes and addresses this knowledge gap in its brochure “Marketing credit + debit cards to millennials,” where the company advises its partners (banks, and merchants that advertise their own credit cards) to gain Millennials’ trust by closing the knowledge gap: “establish your institution as a partner in helping customers build and use credit wisely by providing credit-building and budgeting apps and tools.” In this example, Visa wants to broaden the pool of credit card experts, so the average consumer can select a credit card with confidence.
Buying a Home: Peer 38.13%, Expert 61.87%
Without a doubt, buying a home is a major investment—and not just monetarily—so naturally we will seek an expert’s opinion before making a decision. Michelle Thomas from Washingtonian magazine mentions the need for both expert help (“Treat [buying a home] as if it were a medical decision . . . if you broke a bone, you won’t go on WebMD—you’d see a doctor.”) and peer recommendations (“[The real estate] business is all about who you know. So—who do you know? Have any of your friends recent bought a condo? Ask for their agent.”).
According to the Commerce Department, homeownership rate is at a 48-year low of 63.4 percent. And while the homeownership rate has declined, the number of new renter households has increased. The Wall Street Journal chalks these trends up to a number of factors: “rising home prices, student loans, delays in marriage and childbearing, and uncertainty about buying a home as an investment,” [emphasis added] among them.
This alluded-to “uncertainty” is referring to economic uncertainty. Those who grew up during the housing crisis of 2008 (born between 1980 and 1995) now make up the majority of the home-buying market at 32 percent, and the great majority of them are eager to buy a home, considering homeownership a major step toward realizing the American Dream. But as with credit cards, these consumers have an ever-increasing knowledge gap to deal with, not to mention a fair bit of skepticism to overcome—both toward the market and its experts.
When Long-Term (or Financial) Consequences Are Involved, We Trust the Experts
The last section involves high-investment decisions: choices we perceive as having lifelong implications, or areas in which the knowledge gap is the widest. In these situations, we are mostly like to trust an expert (for better or for worse) than we are a peer. These are situations that, at least for most adults, will become a part of everyday life, and failure to educate oneself on these decisions could have serious negative consequences:
Selecting a Car Insurance Provider: Peer 35.04%, Expert 64.96%
That people are nearly twice as likely to trust an expert than they are a peer when selecting a car insurance provider suggests a sizable knowledge gap, and therefore a high-investment decision. In an article from the Financial Services Review, insurance is described as “among the most complex financial products that many consumers will purchase in their lifetimes.”
“Informed consumption decisions require consumers to choose an appropriate level of coverage, to understand policy terms and contractual features, to compare services and financial soundness of competing insurers, and to understand their rights and responsibilities under the contracts.”
To illustrate the knowledge gap further, the American Institutes for Research ran a health insurance literacy survey among 800 individuals to compare an average person’s perceived knowledge of health insurance versus that person’s actual knowledge—and the results weren’t great. While 75 percent of people feel confident they know how to use health insurance, only 20 percent can accurately calculate their out-of-pocket costs for a doctor’s visit. Nearly half of people will not fully review their insurance plans before signing, and only 21 percent of people check to see which hospitals and doctors are covered by their insurance.
Insurance provider MetLife conducted a home insurance literacy study in 2010 with similar results. Bill Moore, then president of MetLife Auto & Home, recommended that consumers should “[learn] more about their politics and [select] the coverage that best meets their needs, rather than simply shopping for the lowest premium.”
In 2012, Google attempted to close the knowledge gap by creating an auto insurance comparison tool on its platform, but is now shutting it down. According to Joshua Dziabiak, COO of car-insurance comparison marketplace The Zebra, the tool did not seem to do “enough to educate consumers about the complexities of the financial service beyond its price quotes.”
The bottom line is this: when dealing with insurance, we need to 1) educate ourselves and 2) make sure the expert resource we use provides solid information, as this is an area where a shady insurance provider could really take advantage of unsuspecting consumers.
Vehicles: Peer 33.79%, Expert 66.21%
Similar to buying a home, buying a car is a high-investment decision, wherein the consumer must consider several complicated factors before the decision can be satisfactorily made. But who are the experts we’re trusting? And is that trust misplaced?
Time magazine cited a 2012 study by Maritz Research that measured the weight of various influences in the car buying/leasing process. The study suggested that people are more likely to trust the salesperson at a car dealership than their friends and family when it comes to buying or leasing a car. “People buy from people,” says Chris Travell, vice president and strategic consultant for Maritz Research, “we look to those we trust for their recommendation, especially when the buying decision is perceived as having a potentially high risk, like in buying a new car.”
If that sounds scary, don’t worry. This survey had salespeople edging out friends and family by a little over 3 percent (21.9 percent and 18.7 percent respectively). And car salespeople ranked among the least trustworthy people in a 2012 Gallup poll. We still value the opinion of our friends and family—a 2015 study by Crowdtap identified peer recommendations as the sole influencer of the majority (36 percent) of its respondents—but we are more likely to qualify their recommendations with expert opinion.
Choosing a Diet/Exercise Plan: Peer 32.94%, Expert 67.06%
When it comes to our actual physical health and well-being, we are extremely likely to weigh the opinion of a health expert over a family member or friend. Unfortunately, plenty of companies and individuals working in the health and wellness field take advantage of this prejudice by using trumped up science, or misusing their own credentials to sell us products and services that may or may not work.
Vetting the experts we decide to trust needs to be our top priority—especially when your own health is concerned. But as John Oliver explained on his late-night HBO program Last Week Tonight with John Oliver, putting too much faith in a health expert (especially one with a hidden agenda) could have deadly consequences:
(Contains NSFW language)
You might be thinking, “if we can’t trust a doctor, then who can we trust?” The thing is, you should trust doctors and other health professionals; but you should also be skeptical of anyone promising an easy or quick solution to your health problems, doctor or not.
Getting Advice on a Loan: Peer 21.57%, Expert 78.43%
The loan industry is one of the most complex and lucrative industries in the United States. It’s also fraught with predators posing as advocates, a dangerous place for uneducated consumers. The buying and selling of subprime mortgage loans is what ultimately led to the 2008 financial crisis—all because the average consumer understood very little when it came to loan terms and interest rates. And not to refer too often to a single source, but John Oliver’s piece on the payday loans industry (again, NSFW language) similarly reveals a stunning lack of education when it comes to the control the loan repayment process can have over a person’s life.
Thankfully, not all lenders are as shady as most payday loans companies; nevertheless, this piece brings up an important point when it comes to loans in general: education from proven expert resources is crucial.
Student loan resource LendEDU conducted a survey among 477 college graduates to get a feel for their loan literacy, what they knew, and who they trusted for information. This study, conducted in January 2016, revealed some disturbing lapses: 93 percent of those polled didn’t know the difference between a subsidized and unsubsidized loan, while 72.95 percent thought the bank Sallie Mae was actually a person.
IGrad.com showed an interesting correlation between loan education and the consequences that follow. A survey conducted among 300 nonprofit and for-profit institutions compared student involvement with financial literacy programs to how often students chose to borrow the total dollar amount offered on their student loans. The survey suggested that when students were more involved with financial literacy programs—meaning they received training and education on the borrowing and repayment processes—they were less likely to borrow the full dollar amount offered on their student loans. They borrowed more responsibly, with less likelihood of defaulting on their loans.
The more you can educate yourself (either through independent research or through a financial literacy course), the better prepared you’ll be to intelligently participate in the borrowing and lending process.
Seeking Financial Advice: Peer 20.87%, Expert 79.13%
If you don’t know by now, when it comes to finances, most of us will look to an expert of some kind before we turn to family and friends for advice. And when you look at some consumer financial literacy statistics from 2015, you’ll see why we place such trust in the experts (as opposed to other consumers like ourselves):
- Only 40 percent of Americans have a budget and regularly keep track of their spending.
- Nearly a third of American adults (29 percent) do not set aside any of their income for retirement.
- 57 percent of Americans can successfully calculate interest, identify the effects of inflation, and can explain what risk diversification is.
- In terms of overall financial literacy, the United States ranks 14th in the world.
- While 59 percent of Americans give themselves an A or B in financial literacy, 98 percent of Americans believe “they could benefit from advice and answers to everyday financial questions from a professional.”
Unless you’re a finance professional yourself, nearly everyone (by their own admission) would welcome sound financial advice from a professional—regardless of their current financial acumen. Thankfully, there are a number of strategies (I won’t get into here) to help you identify the right financial advisor for you.
