Nevin's Data "Points"

  It’s long been noted that inertia is a powerful force regarding behavioral finance and automatic enrollment — but it may have limits, according to a new study. Coverage of the report — titled “ Smaller than We Thought?  The Effect of Automatic Savings Policies ” — focused on how job change undermines retirement savings — both because of vesting, as well as the effectiveness of automatic enrollment, and more specifically auto-escalation, since those mechanisms tend to reset with the change in employers (and payroll).    Don’t get me wrong. The report states quite clearly that these automatic mechanisms provide a positive result — the authors comment only that it’s perhaps not quite as positive as most think.  Their solution — give people less access to these monies before retirement, and require savings, rather than permitting an opt-out.  From a pure mathematical stance, there’s little argument there — making people save and prohibiting pre-retiremen...

Much is made these days of the application of behavioral finance and the implications for plan design, as well as the role of choice architecture in helping workers make “better” (if not more informed) benefit decisions.  Valuable as these insights have been, I think much of human behavior (or lack thereof) in these matters can be more simply explained. What’s at work is a concept a friend of mine described to me more than 20 years ago – something he called “the hassle factor.”  It was a philosophy he routinely applied in many aspects of his personal and professional life.  Simply stated, presented with a choice between doing something that is hard, time-consuming, complicated, or even inconvenient, and doing something else, my friend – and, in fairness, human beings generally seem to be – inclined to opt for the latter. Of course, the “hassle factor” CAN be trumped by exterior needs or forces, as anyone who has endured the long lines at the DMV or sat through the b...