News, Analysis, and Research for the Retirement Planning Industry

A Modest Proposal

In Uncategorized on 20 December 2010 at 3:23 pm

Congratulations to Jonathan Chan, winner of TIAA-CREF’s “Raise the Rate” competition. TIAA-CREF’s call for innovative ideas to increase the U.S. personal savings rate to 10% over the next two years received more than 1,000 responses from its Facebook page.

Jonathan’s idea is to “factor a person’s savings habit into their credit score as a positive indicator of credit worthiness, on the theory that a better saver can make a better borrower.”

Jonathan’s idea creatively links savings and spending decisions in an elegant metric. It would not only encourage saving, but it would also help lenders make lending decisions, and, let’s face it, they could use all of the help they can get.

In the New York Times’ coverage of the story they quoted a FICO spokesman who claimed Jonathan’s idea was a “new riff on the time-honored tradition to consider a borrower’s capactiy, collateral and credit score” and then tried to drown out that “new riff” with 100 decibels of easy listening favorites by citing the “practical barriers to implementing his idea in today’s credit scoring models.”

TIAA-CREF CEO Robert Ferguson stated that “[o]ur hope is that the creative and thoughtful ideas put forth by this competition will help to spur a national dialogue about the need for retirement savings and how each of us can take steps to acheive our financial futures.” Hopefully appreciation for the need for creative ideas like Jonathan’s will win out over the aversion to new ideas.

For his part, Jonathan, a 2010 graduate of Northwestern University, will receive $50,000 for his winning idea. When asked what he planned to do with his winnings, Jonathan apologized for the poor reception in the Mercedes sales office, but promised to circle back with me after he returned from a couple weeks in Cabo with friends to “decompress.”*

I’ll be spending that time monitoring my FICO score.

*Though seemingly obvious to me, my wife has pointed out to me on several occasions that people don’t always know when I’m kidding. I am of course kidding regarding Jonathan’s plans with his prize money. No one goes to Cabo anymore.

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