...because people have a difficult time making good financial decisions for themselves, plans should be designed to “nudge” them, as Richard Thaler and Cass Sunstein of the University of Chicago and Obama’s regulatory brain trust would have it, into making better decisions.
The point I am trying to make with this post is not that subtle but it is succinct. I am all for people taking control of their finances, which can include hiring someone like me or not, and having to live with the consequence good or bad. I would love for there to be a choice of opting out of FICA taxes in lieu of putting the same amount or more if mandated into some private account and, again, owning the consequences good or bad. IMO this is very consistent with the Libertarian viewpoint and I am all for it.
However my belief that these choices should be available does not mean that every person should take advantage of these sorts of things. The premise behind the quote above that many people are simply not equipped to make these sorts of decisions is correct. The idea of people being forced to choose something that is "for their own good" is thoroughly reprehensible to me but as I have said before some sort of privatized social security would be ruinous along the lines what has happened to 401ks over the last ten years.
There is nothing wrong with the concept of allowing people to choose some government plan where decisions are made for them as someone left to choose between to going totally on their own with no safety net or some program where they totally delegate the entire thing is making a choice. People with the introspection to know their short comings could benefit from such a concept.
Note I say concept as I'm not sure how well it would play out in practice but that is a different topic. But if people can choose to totally delegate through a CFP or the like then they can be free to choose something the government might offer. Obviously someone who reads stock market blogs will be unlikely to choose some government plan.
Then there was this very similar article from the NY Times which talked about using technology in a way I had never thought of to, as I read it, scare people straight. There was talk of using software to show the user what they might look like at age 70, or whatever, and then try to dramatize what life would be like for the user based, presumably, on stats about what they had saved and how they might be expected to age, health-wise that I imagine was based on personal habits.
Apologies for being too insensitive but an overweight 50 year old who smokes will be likely to to have much higher health costs than the 50 year old who is fit and trim and my take on the article is that software can let people see this first hand and that it has a powerful impact.
My hope for what the impact would be is to create some understanding about how much money needs to be saved, the benefits of working one way or another later in life and getting people to look at themselves with a critical eye for whether or not they are equipped to manage their finances on their own or get help.
On the idea of going it alone Invest With An Edge did a book review of sorts about The Risk Wise Investor. A great one-liner in the review as follows "Since investors are not robots, we have to remember our human habits, characteristics, and limitations." As I write so often about removing emotion from the equation I am probably advocating that people train themselves to become robots. I guess I would say that the closer you can get to being a robot the better equipped you would be for going it alone but this really is a personal thing of mine and may not carry water with too many people.
The task can be simple; learn a little about how things (like markets and credit) function, learn some basics about saving money, learn some basics about how to build a simple portfolio, learn a little about the types of emotional behaviors that have done people in before and how to avoid those behaviors and then stay current. That will get it done for most people who save properly and live within their means but of course executing that simple task is not easy for many people to execute when emotion and lack of diligence on the above steps results in detrimental behavior.