There’s something about getting a will together, checking in on one’s retirement fund, or finally paying down that credit card that causes the procrastination gene to kick in.
In this recent video on CBS, Harvard behavioral economist David Laibson explains the reason for this tendency: “present bias.” Humans put more weight on the present than on the future, so it’s easier to delay the hard work until later. No surprise that’s true for financial tasks, which can be overwhelming, emotional, complex, or unpleasant.
“We humans have wonderful intentions about what we’re going to do,” he explains in this video. But when the time comes to do it, “We decide once again to push it further into the future.”
Laibson uses a simple example from a well-known 1980s experiment in which researchers asked people at Amsterdam workplaces whether they would want a healthy fruit snack, an indulgent chocolate bar, or potato chips next week. Most chose fruit.
On the day they were to receive the snack, the researchers said they lost the workers’ previous selection and asked them to pick again. The preferences flipped, and most chose chocolate.
Laibson goes on to apply the fruit/chocolate concept to financial decisions. The video was recorded last month, but the topic – human behavior – never gets old for Squared Away.Learn More
Susan Beacham’s company has sold nearly one million of its piggy bank with four slots – for spending, saving, donating, and investing. She has now developed an iPhone application based on the iconic pig.
Children who use the clear blue piggy bank like to watch their money clink to the bottom of one of the four separate sections in the pig’s innards. Beacham has developed an entire curriculum around the four choices. The Money Savvy Pig has been adopted as a teaching tool by more than 200 Chicago public schools and by school systems in Seattle, North Dakota, Europe, and elsewhere.
The idea behind the game app, called “Savings Spree,” is the same: to help children “strengthen the muscle of choice and, therefore, their self-regulation and self-control,” said Beacham, chief executive of Money Savvy Generation Inc., a small, mission-driven company employing four people. …
Toronto finance professor Moshe Milevsky has written a new book, so this seemed like a good excuse to revisit his favorite question: are you a stock or a bond?
Milevsky believes financial advisors should ask their clients this question before making any asset-allocation decisions. If someone has a risky job, he argues – if they are a stock – then their portfolio should emphasize bonds.
“If a financial advisor says you have a lot of stocks [in your investment portfolio] and should buy bonds, the response should be, ‘My job is a bond,’ “ he said.
Milevsky is adding another layer to the risk formula usually promoted by financial planners, who typically advise clients to lower their risk as they age. Milevsky wants people to avoid the double jeopardy dramatized by Enron Corp. employees, who had high-risk jobs in energy speculation and put their money into high-risk stocks – even worse, they were Enron stocks.
In a recent interview, he rated a few professions on the stock-bond continuum to demonstrate how his theory works. …Learn More
Paul Solman, a business reporter in Boston for the NewsHour on PBS, put together an excellent piece about educating preschool children about saving. In it, Solman interviews Grover and the children of behavioral economist David Ariely of Duke University, among others.
The piece discusses a research study on self-control among young children, which was covered recently by Squared Away.