The Nagging Nanny State

There is a movement amongst earnest policy wonks that might be called Nanny State Light. It’s a compromise position between full-on centrally  planned we-know-what’s-best-for-you Toddler Cart Crop - Remi  Jouancontrol and you’re-on-your-own-kid libertarianism.

The idea is that instead of making people do the right thing or hoping that they do what’s best on their own, you give them a little nudge and hint in the right direction. This is, I am told, the topic of a clever and popular book, Nudge, which I haven’t yet gotten around to reading. (But I bought a copy a few weeks ago.  That’s something, isn’t it?)

The latest scheme along these lines to hit the media is in today’s Wall Street Journal. Apparently, all we need to do to get people to save more money is to send them a text message reminding them to save more money.

A new study by a group of economists looking at why people save money found that simply sending out cellphone reminders increased savings balances by 6%.

The study challenges the idea that people don’t have enough self-control to save. Instead, the problem may be that they just aren’t paying attention, said Dartmouth University economics professor Jonathan Zinman, one of the study’s four authors.

"Savings isn’t at the top of their mind," said Mr. Zinman. "Basically all we did was remind them."

Brilliant! So it turns out that all we need to reverse multiple decades of Americans saving less than other countries is systematically nag, I mean "remind" them to save. That’s a relief. I guess we just have a reminder shortage.

I had thought we saved less than other countries for other reasons.  Like because we have a hyper efficient retail system that delivers consumer goods more cheaply than anywhere else and that we don’t have a VAT tax on those goods.  We also have a peculiarly high level of home ownership, which tends to skew the numbers. And, of course, optimistic assumptions about future wealth is ingrained in the national character.

Oh, and one more thing I used to believe. I used to think that saving for retirement was confusing and scary and that most people who spent too much and saved too little did so because they didn’t know any better.  Come to think of it, I still believe this.

The nudge crowd loves to bring up the well documented phenomenon that if you make enrolling rather than not enrolling in a 401k the default for new employees, enrollment will go up.

I think that increasing 401k enrollment is basically a good thing and that this is a good policy, but let’s be honest about what is going on here. There is a group of consumers too ignorant, intimidated, confused, and/or lazy to change their 401k participation status. For their own good, we are rigging the system to get them to fall into the right choice. That’s better than the other way around, but we’re still ignoring the core problem.

Our money lives are very complicated and getting more so. A lot of us don’t really know what we are supposed to be doing. Nor is it easy to find out. Much of the available advice and instruction on money is unhelpful or just plain wrong. Text messages aren’t really much help here.

Nudging people in the right direction is probably, mostly, a good thing. But when it comes to the Personal Finance Problem, we need more than nudges. There are only so many simple topics to nudge on. And we quickly get into the problem of the nudgers not knowing the right answer either.

No, like it or not we have a you’re-on-your-own-kid society and little hints from nanny aren’t going to get us anywhere. What we need is a better way to teach the kids what to do.

[Photo: Remi Jouan]


  • By Kate, November 4, 2009 @ 1:52 pm

    Great post Frank. Hopefully a follow up is in the works with an idea for better way to teach the kids what to do from you?

    IMO, I like the idea of financial literacy being part of the core curriculum to graduate high school. However, I think it should be taught by people actually in the field locally (i.e. someone who works at a bank teaching students how to balance checkbooks, about mortgages, etc). At the same time, I don’t know that this would work, because I sure as heck didn’t pay as much attention in the classroom as I should have until college.

    It begins at home, but the problem is that the parent(s) don’t know how to manage their money either, let alone how to pass on sound financial habits to their kids.

  • By Evan, November 4, 2009 @ 3:03 pm

    I think what scares me is the easy slippery slope when nagging turns into forcing.

  • By Rick Francis, November 4, 2009 @ 5:12 pm

    >we’re still ignoring the core problem

    Or maybe just acknowledging it? I suspect education could never be a complete solution as some students will always fail to lean or act upon the lessons.

    It is a lot easier to fix the system to handle ignorant, intimidated, confused, and/or lazy participants than it is to fix all these flaws in all of the participants!

    -Rick Francis

  • By Jim, November 4, 2009 @ 5:31 pm

    I have a VERY hard time believing that text messages would increase saving 6%. I’d like to see the actual study. But I can’t find it.

    The WSJ article says: “The economists conducted their study in three locations in the developing world, but said they were confident the results would translate to the U.S.” They did the study in Philippines, Peru and Bolivia. I don’t think its a safe assumption at all to think Americans would behave the same.

  • By Steve, November 4, 2009 @ 6:02 pm

    Having read Nudge, I think what you’re missing is the fact that some default must inevitably be chosen (or in some cases, some ordering must be given to the choices.) The default will have a large effect on what people choose, so it might as well be a sensible default. “Save zero percent” seems pretty obviously an unreasonable default.

    That said, I think what Nudge is missing (or deliberately avoiding) is the problem of choosing that default. It’s certainly not an easy task – it’s easy to screw up. Furthermore it can be an opportunities for conflicts of interest and other corruption.

  • By Frank Curmudgeon, November 4, 2009 @ 6:42 pm

    Kate and Rick: The immediate problem with the education solution is that we don’t have an army of teachers to teach this. Even teaching the teachers isn’t going to be easy, as about half our established experts should have their mouths duct taped over.

    Steve: I’m not anti-nudging, I just don’t think that it’s as powerful a solution as others seem to think. Of course the defualt should be non-zero and I don’t think texts reminding you to save can be harmful, but let’s be realistic about what to expect from these sorts of things.

  • By kitty, November 4, 2009 @ 7:30 pm

    I don’t know if I could subscribe to the whole financial education thing. My parents and I came from the Soviet Union, and we certainly weren’t taught finances there – unless you count “how to stretch 100 rubles to last a month and yet manage some fun or culture” or “how to save for 500 ruble imported shoes because everything that cost less is junk” financial education. Yet, somehow we figured out that, for example, credit card balances have to be paid in full or else it’ll be expensive. And my parent figured it out with very limited English.

    What we did have is an appreciation of the value of money and an understanding what happens when you don’t have it. For example, my parents have never been shy about explaining to me when I was very little how long mommy has to work to buy this or that. Does this count as financial education? If so, than maybe it is more suitable for the kindergarten? Maybe it should be a reality show: “how to survive for two months with $X”? Every week a person with less money left goes home.

    I also doubt the study. Even if we look at medical studies, we can see how many of them turn out flawed. Except for well conducted RCTs, there are always disclaimers about study limitations. Yet, as soon as someone mentions “we did a study” in a paper, people seem to start quoting it.

    Nudging may remind people to do things, but it may also annoy.

  • By Dasha, November 4, 2009 @ 9:19 pm

    I’d just like to point out that the picture on the cover of that book is adorable. Clearly, the cuteness of nudging should be of relevance here.

  • By Rob Bennett, November 5, 2009 @ 8:07 am

    like it or not we have a you’re-on-your-own-kid society and little hints from nanny aren’t going to get us anywhere.

    I disagree.

    My take is that we have heavy nudging to do things that hurt us (from advertisers, who are effective at influencing behavior but not in a way that serves the common good) but little nudging to do things that help us (because of of a boogieman fear that to nudge people in positive directions is to create a nanny state).

    There is no such thing as purely independent action. Not among humans. We are all influenced by what we hear others around us say. Our consumer society is not leaving us on our own. Our consumer society is nudging us and nudging us hard. We already have a nanny state, it’s just that it’s a not-so-nice nanny state.

    I don’t oppose advertising. It has its place. My view is that there should be a counter nudge to the advertising nudge. The forces trying to persuade us to make bad money decisions are winning the fight because the forces inclined to help us make good money decisions feel that it would be too nannyish to take the sorts of steps that are likely to work.

    If nudging weren’t as powerful as it is, advertisers wouldn’t be spending millions on it. They get paid to know what works. Repetition of a message (no matter how foolish the message) is what persuades the human brain of the validity of the message.


  • By bex, November 5, 2009 @ 12:46 pm

    “I think what scares me is the easy slippery slope when nagging turns into forcing.”

    The “slippery slope” argument is a fallacy of reasoning. You’ve established no causal relationship between nudging and forcing. Therefore, you’re statement is the logical equivalent of “cupcakes lead to cannibalism.”

    When an government makes the choice to “nudge,” they are making a conscious choice NOT to “force” because people don’t like being forced. That’s the whole point…

  • By bex, November 5, 2009 @ 12:53 pm


    Two other books in the same vein are “How We Decide” and “Predictably Irrational.”

    I think Frank would like “Predictably Irrational” better than “Nudge,” because it actually gives some pretty hard data about why folks are so weird about procrastination and “free stuff.”

  • By mljhouse, November 5, 2009 @ 3:34 pm

    Regarding high schoolers getting classes in finance – many high schools do offer that. My 2 kids took the “Life Skills” class in high school to learn about money and jobs. They heard from me the virtues of spending less than you earn and avoiding debt. They are both on their own now and do a lousy job managing their money. Hard to imagine they could do worse. Go figure.

  • By Jim, November 5, 2009 @ 4:02 pm

    Bex made me choke on my cupcake.

    I think educating kids in school will help but its certainly not a cure all. Kids don’t always pay attention in school.

  • By Frank Curmudgeon, November 5, 2009 @ 4:41 pm

    I haven’t read How We Decide but I’ve read Predictably Irrational. I think I’ve even mentioned it here. I also read Why We Buy, which is an interesting book on retail stores.

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