September 11, 2012
Motivation to Save: A Simple Solution?
Quiz: by socking away $400 per month, earning 10 percent on your money, you can save $302,412 in 20 years. So, how much would you have in that same account in 40 years?
Yes, it’s more than double. But how much more?
Most Americans can’t do the math, explains Craig McKenzie of the University of California, San Diego’s Rady School of Management, in this video. And if they can’t do the math, then they are unable to comprehend how much easier their lives would be if they took advantage of the enormous benefits of starting to save early for their retirement.
That’s hardly surprising. What is surprising, however, is that McKenzie, a cognitive psychologist by training, experimented with a “simple, straightforward intervention” to get the point across to research subjects of the large boost to saving of earning compound interest over many years. Even better, it succeeded in motivating them to save, he said.
The solution is, as promised, simple – so easy that employers who offer 401ks, as well as mutual fund companies, banks and credit unions, could easily implement it.
To learn about how it works, watch this video in which he presents his findings at Rand Corp.’s 2012 Behavioral Finance Forum in Washington in July. To watch other conference videos, go to Rand’s website.
P.S. The answer to the question in the first paragraph is $2,336,889.