News, Analysis, and Research for the Retirement Planning Industry

I’m Not Lazy, I Am Neuroeconomically Impaired

In Uncategorized on 10 February 2011 at 5:40 pm

On Monday, MarketWatch’s Robert Powell published a great article: “Savers impatience hinders retirement goals.”
Robert’s article discusses the two explanations offered in a recent NBER working paper as to why consumers have trouble with financial decisions.  One is a lack of financial literacy.  The second is impatience or “present-bias” which Stephen Utkus of Vanguard’s Center for Retirement Research describes as “an inability to plan for long-term consequences.”
For these two reasons, I like to draw parallels between saving for retirement and getting in shape.  They are two of the goals most often cited by respondents to the ubiquitous surveys that are asked during that generally slow news week between Christmas and New Year’s, and they are two goals are most seldom attained.
For those who want to get back into shape (this blogger included), there is some nutritional and fitness illiteracy (“but the Starbucks’ coffee cake is low-fat”, or “I did an extra 20 minutes on the treadmill so I can have dessert”), but most of it can be attributed to “difficulty in executing long-term plans because the prefrontal cortex is either deficient, or overridden by more automatic and visceral brain processes.” (not, as my wife insists, because “I am lazy”).  
Health advocates have done a much better job of increasing literacy in their industry than we have done in ours.  I will grant that “if it tastes good, it’s bad for you” and “move more” are a little more intuitive than mortality credits and discounting for inflation (or compound interest, for that matter), but that is all the more reason we need to start younger and bring some creativity to learning tools and the teaching process.  
Olivia Mitchell, Director of the Pension Research Council and co-author of the NBER paper suggests that plan sponsors and policymakers “seeking to enhance employee participation in, and contributions to, retirement savings programs would do well to invest in product simplification and better marketing, clearly describing to their workers the costs and benefits of different funds as well as the importance of fees in this decision.”
With respect to the second issue; a lack of disciple (to put it somewhat crudely), Robert suggests and experts tend to agree that “auto-everything” on retirement plans – auto-enrollment, auto-escalation, auto-rebalancing is necessary for our own good.  I agree that is necessary, but not likely sufficient.  What other ways can we use inertia to our benefit to improve retirement preparedness?
I have read that exercise improves creative thinking.  If only my shoes had an auto-exercise default setting, I am sure I could cogitate more effectively on this critical question.


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