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 control 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]