06 February 2012
"What if your 401(k) paperwork came with a tin of cat food―to remind you what you might be eating in old age if you don’t learn a bit more about investing?" That is the question posed by Stephen J. Dubner in the most recent Freakonomics podcast. He actually gets to this question after a long discussion of how to get doctors to wash their hands more and how to educate people about personal finance. Really he was talking about behavior change, one of the biggest factors in developing a sound retirement plan.
Dubner points to a 1996 study from a hospital in Australia where doctors self-reported washing their hands 73 percent of the time. But when they were secretly observed by nurses the actual rate of hand washing was nine percent. I could spend all day trying to figure out why doctors did not wash their hands, but in the end, trying to get them to change that behavior was a bigger problem. Educating them about the risk factors did not work. They knew the risk factors; they were doctors. In the end, the hospital shamed doctors into hand washing by posting their names publicly and posting a picture of a doctor’s hand print full of bacteria as the screen saver on all the hospital computers. (They took samples of all the doctor's hands and grew the bacteria.)
What does a study in hand washing have to do with your retirement plan? On a regular basis I see very smart, educated people try to handle their own finances. And yet those same people, with some knowledge of finance, make bad decisions. For example, they might sell stocks when the market is low, or buy stocks when the market is exuberant; they might forget to withhold enough tax on an IRA distribution; or they might put their home in a trust and forget to let the property/casualty agent know about it. Whatever the issue, the world of personal finance is so vast that educating yourself might be more than should be expected of any of us. After all, most of us do not try to act as our own doctor.
Education on a topic can lead to many different biases getting in the way. For example, a recency bias will tell me that what just happened will happen again―if the market has been up/down for the last week, many assume it will continue in that same direction. Yet we all know that is not true. We cannot see the little bugs, or we assume they are not there. Still, if a doctor does not wash her hands we all know she might spread germs from patient to patient. Similarly, trying to work on your own retirement plan can lead to results that might be unseen in the short term but terrible for you in the long term. What each of us must contemplate is a behavior change.
The behavior change, ironically, comes back to the one thing that I just said might not help you: education. In my opinion, each of us needs to be educated to ask the right questions, not become all-knowing in the answers. The people we admire most in history were great question-askers, especially the philosophers. I believe more Americans would have a better retirement if they started asking better questions of unbiased advisors and listening to the answers instead of gauging how much to agree or disagree with those answers. It really is no different than going to the doctor; I do not debate if the doctor gave me the right prescription for the diagnosis.
I can hear the groaning now―Jon is telling me to hire a guy like himself and just take the advice. And my response is, yes I am. I am your can of cat food today, helping to make sure you are eating well in retirement.
About Jon T. Meyer, CFP®
Jon T. Meyer, CFP® is the President of Boeckermann, Grafstrom & Mayer Wealth Management, LLC, a Minneapolis-based Registered Investment Advisory firm. Jon specializes in working with retirees and individuals nearing retirement to help them create the income they need in retirement by utilizing advanced social security planning, tax planning and investment strategies. For more information visit www.bgmwealth.com.
