This was a recent headline in a Wall Street Journal article. It’s feels like clickbait and so, I clicked. Wow, millennials are saving much more for retirement than their generational predecessors.
This is because they are more tech savvy, value experiences over physical possessions, are more socially conscious and value a flexible work environment.
All of those claims about millennials are ever-present on the internet but they wilt to nothingness under the light of gross generalizations and, period and cohort effects.
Defaults and a systemic nudge put in place by Congress and then the 401k providers.
Vanguard’s 401(k) services for 1700 employers saw nearly 60% enrollment among new hires, up from 10% in 2006. What happened in 2006? Congress passed a law encouraging automatically putting new hires into 401ks. Its opt-out, not opt-in. Many of these plans also automatically raise workers’ savings rates each year until hitting a threshold, say 10% of pay.
A millenial quoted in the article said, “I wasn’t thinking about retirement at all. They sent me this letter saying they were going to auto-enroll me, and I said, ‘OK, I’ll do what it says to do.’”
Making a choice the default option can significantly increases its uptake. Even those who could opt out of these savings plans rarely do. It’s not just the default option, these plans automate all the complex, confusing investment decisions with plans that change as you age, adjusting the equity/bond mix over time to reduce risk and preserve capital. It’s all done for you.
Our behavioral biases get a three-fold bad rap, two deserved the other not.
- The fair criticism is,
- the seeming exponential increase in the number of biases. Most of this is garbage, it’s repackaging and branding, not real.
- The replication crisis, which means a bunch of these biases are bogus, even some of the foundational ones.
- The unfair, bad rap is all the 3rd rate charlatans who have reduced behavioral science down to nudge parlor tricks. These people do a disservice to the field with their poorly executed, one-off interventions that can sour folks on the entire field even though they’ve only been (poorly) exposed to 5% of it.
But, for today, it’s a nudge win for a well-grounded, replicated bias used to make a system wide change versus an individual level intervention. The former is the only way to get big wins and for a variety of reasons, those are hard to come by.