The psychology behind the ‘lazy tax’: Why most people overpay for everything from home loans to utilities

Consumers that don't haggle or shop around aren't lazy, they're just human, behavioural experts say.

Consumers that don't haggle or shop around aren't lazy, they're just human, behavioural experts say. Photo: Getty

Mortgage holders stand to save up to $850 a year through simply negotiating with their banks, an inquiry from the consumer watchdog has revealed.

The Australian Competition and Consumer Commission this week released the findings from its inquiry into mortgage prices, showing just 11 per cent of mortgage holders (with variable rates) took the time to haggle for a better deal.

Existing borrowers with average-sized mortgages with one of the big five banks could save $850, but the ACCC said some borrowers had the potential to save even more. All they have to do is ask.

So why do people overwhelmingly choose to stay put when there are better, cheaper options out there?

The phenomenon of consumers overpaying for services that are available at cheaper prices – often from their provider – is known as the ‘lazy tax’.

What is the lazy tax?

The ‘lazy tax’ is a hidden financial penalty consumers pay for not regularly shopping around, negotiating, and upgrading to the best new deal on everything from utility bills to phone, internet and home loans.

It’s the “money many Australians are losing simply because they can’t be bothered shopping around,” comparison website iSelect spokeswoman Laura Crowden said.

“Obviously, it’s not an official tax – it’s the price you pay for staying with the one provider for too long and not doing your research about what’s out there. It applies to a range of services – health insurance, energy providers and banks to name a few.”

The New Daily contributing editor Michael Pascoe has been raising awareness about the ‘lazy tax’ for years.

“Is it reasonable for a business to offer a discount to attract new customers? Businesses across the spectrum are aware of the ‘cost of acquisition’ – what it takes to sign up a new customer whether through marketing, ‘sales’, introducer incentives or, yes, discounts,” he wrote in his latest column.

“Yes, it is annoying to be a loyal customer and think you’re not being rewarded for that loyalty. It’s therefore up to the customer to seek a matching discount or go elsewhere.”

Earlier this year, a survey of 2306 people by comparison website Finder found 45 per cent planned to switch at least one of their service providers in 2018, while the majority – 55 per cent – had no plans to switch.

Previous Finder research has found 40 per cent of Australians remain with their childhood bank, and will stay with their health fund for an average of 11.8 years.

Finder money expert Bessie Hassan urged Australians to review their monthly outgoings and consider switching to save money.

“A surprising number of Australians stay loyal to their current providers due to laziness or being scared of change – potentially costing themselves thousands of dollars a year,” she said.

“Doing a ‘health check’ of your bills and outgoings is probably one of the most significant things Australians can do to improve their financial position.”

According to experts in consumer behaviour, however, it’s not so simple.

Not lazy, just human

Consumers who fail to shop for bargains and haggle for the best deals aren’t lazy – they’re just human, according to Deakin Business School chair of consumer behaviour Paul Harrison.

“It’s wrong to frame it as a ‘lazy tax’,” Dr Harrison said.

“It’s a derogatory term, it’s actually a lazy term. It’s not taking into consideration what it is to be human and operating in a world where there are multiple decisions to be made all the time.”

Dr Harrison prefers the term “inertia fee”.

It’s “not a community contribution” like a tax, he said. Rather, service providers are charging people a fee for staying put.

“People aren’t lazy, they are just human. Haggling is hard work. It requires psychological, intellectual, and temporal effort,” he said.

“The reality is people are doing lots of things so much of the time, it’s a subjective tradeoff.”

Finding a good deal isn’t always worth it

For many, the financial benefit of putting effort into finding a good deal isn’t worth the toll it takes, according to University of Wollongong behavioural economist Michal Strahilevitz.

“There is the rational side of getting a good deal, and we can all calculate that in dollars and cents. However, there is also a more emotional and sometimes even irrational side to getting a good deal,” Dr Strahilevitz said.

“For example, some people might drive 30 minutes or wait in line to save a few dollars, even though their time may end up more valuable than the money saved.”

Negotiating to get a good deal can be stressful and time consuming.

“Some may prefer the relaxed “no big deal” attitude towards making purchase decisions. Keeping it simple has its value, too,” Dr Strahilevitz said.

Living in ‘the now’

According to leading consumer psychologist Adam Ferrier, there’s a simple physiological reason why most Australians stomach the ‘lazy tax’.

“All consumers inherently are born to conserve energy, and not necessarily get the best deal under every circumstance. It’s not necessarily about being lazy,” he said.

“The human brain weighs about 2 per cent of bodyweight and accounts for 20 per cent of energy.

“The less energy we use, the less fuel we have to consume, so we’re hard wired to think as little as possible.”

Humans therefore tend to form habitual behaviours very quickly and not think about things, leading to a “status quo bias”, Mr Ferrier said.

“We continue it rather than use the energy to change it,” he said.

“The harder it is to make a decision, the less likely a decision will get made. People will just put off making the decision and stick with the status quo.”

When it comes to thinking about long-term financial benefits, the phenomenon of “hyperbolic discounting” also emerges.

“We consider ‘the now’ much more than we consider the future,” Mr Ferrier said.

“So it feels like if it takes energy to reconsider a mortgage, and most of the savings are in the future as opposed to immediately, it’s just not worth the effort.”

Inertia is a powerful loyalty tool

Regulators need to intervene and create a system with the interests of consumers at heart, and force businesses to take more responsibility, Dr Harrison said.

Once a product is sold there’s little motivation for businesses to “offer an after-sales experience that gives cheaper outcomes”, he said.

“The bottom lines is that businesses like that people are ‘lazy’, inertia is a powerful loyalty tool.”

The current system sets consumers up to fail, and it’s unrealistic to expect people to be experts on everything, Dr Harrison said.

“One of the things that’s missing from the discussion is the complexity of navigating all these different contexts,” he said.

“Even within a single context you’ve got multiple accounts and rules, it’s ridiculous to think that anyone could be across everything.”

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