Most us are not saving enough for retirement. Half of us do not have access to 401(k) plans, and many of us opt out.
“Nine out of ten [Americans] either cannot save through their 401(k) plan, decide not to save – or don’t decide – or save too little.”
We all have self-control issues, “inertia” and “loss aversion” work against saving money.
“People, mentally and emotionally and intuitively, frame savings as a loss.”
Programs like Save More Tomorrow can overcome these human tendencies and boost savings.
“Present bias causes us to think about saving, but end up spending.”
Plans like Save More Tomorrow allow participants to agree to a savings increase that occurs automatically at some future point, such as when they receive a raise.
“Save More Tomorrow invites employees to save more maybe next year – some time in the future.”
This type of savings plan is behavioral finance in action. This practice combines psychology and economics to explain why people make financial mistakes and to offer solutions.
TED Conferences LLC
Behavioral Economist & UCLA Professor at Anderson School of Management
Shlomo Benartzi studies behavioral finance with a special interest in personal finance. He is co-founder of the Behavioral Finance Forum (www.behavioralfinanceforum.com), a collective of 40 prominent academics and 40 major financial institutions from around the globe. The Forum helps consumers make better financial decisions by fostering collaborative research efforts between academics and industry leaders.
Benartzi’s most significant research contribution is the development of Save More Tomorrow™ (SMarT), a behavioral prescription designed to help employees increase their savings rates gradually over time.