The Federal Reserve Bulletin published a piece in 2013, summing up new ways to design better consumer understanding & decision-making tools. The article is by Jeanne M. Hogarth and Ellen A. Merry of the Board’s Division of Consumer & Community Affairs. Read the entire article here.
The Federal Reserve Board has studied ways to improve the information and materials–including required disclosures–that consumers draw on when they purchase and use financial products and services. As part of its regulatory development process, the Board has used qualitative and quantitative research methods in controlled environments to create new disclosures and to test them for their ability to enhance consumer understanding of a wide range of financial products and services. The goal has been to develop disclosures that consumers can understand and use to help them make financial decisions that align with their personal circumstances.
This article provides an overview of results from some of the Board’s consumer testing projects. The results reveal some lessons learned, suggest potential best practices for consumer disclosure content and presentation, and highlight challenges involved in crafting effective disclosures for financial products. The following are key findings from the testing:
- Disclosure language should be plain but meaningful. When reading disclosure documents, consumers are best served by terms that are straightforward. Small wording changes can significantly improve consumer understanding, but for some content, communicating the intended meaning may be difficult even with the use of plain language.
- Thoughtful design can make disclosures more usable. Carefully designed visual elements in disclosures, such as titles, headings, tables, charts, and typography can increase consumers’ willingness to read disclosures and can aid their ability to navigate and understand them.
- Contextual information can improve comprehension and usability. Context, or a “frame,” for information on a disclosure can help readers understand both specific content in the disclosure as well as its overall message. It can also help consumers better comprehend how to use the information.
- Achieving a neutral tone can be challenging. Although disclosures often strive for a neutral tone to avoid “steering” consumers in one direction over another, achieving neutrality is difficult.
- Creating disclosures may involve creating a choice structure. In some cases where choice options are not specified in the law, establishing the structure may be part of creating the disclosure.
- Standardizing disclosure can be challenging. Standardization can be beneficial, but finding terms that are truly standard across all contexts can be difficult, and consumers may need to be alerted when a “standard term” has a different meaning than the one they may be familiar with.
- What works in print may not work online. Disclosure design needs to take into account the possibilities and limitations of alternative delivery channels.
- “Less is more” often remains true. Too much information can overwhelm consumers or distract their attention from key content.