Debunking Myths of the AARP – Episode 191

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome back to the Prosperity Podcast. This is No BS Money Guy and we have the president of Partners for Prosperity and my co-host, Kim Butler with us today. And today we’re going to be discussing an article that I read in the AARP magazine. It’s May of 2017. Again, I think you have to be 50 or something to get the magazine, but it’s a great magazine, great resource. They have a lot of great education in here. Some of it we agree with, some of it we don’t.

[00:51] So we’re going to be talking about an article today under the Your Money section called The Big Nudge. And it’s how we are tricked into doing the right thing by behavioral science. And this is all about the new frontier of behavioral economics. And behavioral economics acknowledges the facts that humans do not do often what is in their best interest long-term. They do what feels best today and sacrifice for the long-term. Would you agree with that, Kim? Absolutely. You know, it’s true around our health. It’s true around what we eat and exercise and sleep with. It’s true around what we put in our brains. And it’s definitely true about our money. Super. Well, I’m just going to kind of jump into this.

[01:41] And it basically says increasingly banks, companies, and even the government are using tactics to get you to make better financial decisions. You may not even realize it, but the world of business and finance is becoming masterful at nudging you to take action. So the number one thing that they discuss is saving for retirement. Now, the way that I guess they have decided to address this is many companies have now gone from an opt-in 401k plan to an opt-out 401k plan, meaning that you are automatically signed up when you are hired. Sometimes there’s a certain 30, 60, 90-day waiting period before it goes into effect. But that money just starts coming out of your paychecks. And if you want to stop it, you have the option to, but you’re not opting in.

[02:37] So it has increased the enrollment rate dramatically. But how good is that? Well, that is a shame. In America, we get to be in a Russia-like legal environment sometimes. That’s just not right, in my opinion. But it is definitely common that the powers that be are starting to try to figure out how to get people to do what they think is good. And so, as you’re well aware, I’m not a big fan of this word, retirement. I don’t think that, now I’m curious. Actually, let me interrupt myself. Does it say save for retirement or invest for retirement? Save for retirement. OK, that’s an interesting verb. So, first of all, I think the challenge here is that they’ve got two words that are really disconnected because truly, if I’m 20, 30, even 40, even close to 50, I have another

[03:35] many, many, many, like 30, 40, 50 years ahead of me, that requires investing. And yet, even the original 401k plan, which, by the way, is now being questioned even by its own inventors, was called a 401k savings plan. So we have a whole bunch of words here that are just not right. And you should save for liquidity. You should save for emergencies and opportunity. You should invest for long-term. But to me, that’s anything greater than, like, five to 10 years. But the issue of, quote, saving for, quote, retirement is just all wrong. And then the issue of losing control. Control is the fifth of the seven principles of prosperity. It’s one of the seven principles of prosperity that we operate with.

[04:28] And when you give up control, you give up a lot of not only your money, but your thinking and your ability to change and your ability to take action. And they’re taking all that away from you. I’m not liking this. OK, I think I would probably agree with you there. On the second part, they talk about making investment decisions easier. And this is basically what they’re describing is, is that inside the 401k, they found is that if there is too many choices, investors or savers, however you want to define that, tend to make no decisions at all or not revisit the decisions they’ve made regularly enough to keep their portfolio updated. So their solution to this is to limit the choices and to promote target

[05:23] dated funds. And I’ll let you kind of explain what that is. All right. So the limiting of choice is understandable, but it does not help people because, again, it tries to take the control away. And the target date fund arena, which we have done quite a bit of research and reporting on, is really a recipe for disaster. It concerns me greatly that they are forcing people into those. There were people with target date funds in 08 and 09 that were two years away from retirement. And those funds, which were supposed to be age based, did not take into consideration or build on the promise that they had put forth. And they lost a bunch of people’s money. And it’s a shame. And so here we have this environment where people are thinking they can not

[06:19] be responsible. When we believe that we can get out of a responsibility, then we’re going to get the results of that lack of responsibility. And so it’s a sad statement. It’s something that we’re going to continue to fight against. People need to be given choices. They need to be given control. And then they need to want to have the responsibility to make the decisions and the different things that they can do on their own with their own money. This is the people’s own money that we’re talking about here, right? Absolutely. It’s kind of like the comment of, you know, everybody wants to lose 10 pounds, nobody wants to lose a half a pound, but you can’t get to one without the other. That’s well said.

[07:09] All right. The next section they talk about is making savings more fun. And they’re trying to increase people’s optimism and enjoyment by having raffles and cash prizes go along with savings. So in other words, for every so much you save, you get a chance at winning $500 cash rewards or a thousand dollar grand prize or something like that. Well, now I’m going to have to applaud them. I mean, it’s a little sick that we have to be enticed to save, but Hey, we are human beings, me included. And so if that’s what it takes, then I’m all in. And I am well aware that the gamification can be a good thing. So with your competition against yourself or with your neighbor or your friends or whatever, Hey, whatever works, if that helps you

[08:00] clean the bathrooms, there’s, there’s a whole site for gamification around house cleaning. If it helps you save money, if it helps you do better, you know, all of the connection of the iFit pod things that you wear on your wrist, can’t think of the right word and all of that, that’s all gamification. And if that enables us to do a better job as human beings and overcome some of the limitations that we have, then let’s go for it. On the other hand, one of the things our family’s always done that solve the discipline or the lack of discipline, I guess I should say around saving is we just have big life insurance policies and pay the premiums and it takes away the entire issue. And we don’t have to worry about budgeting or playing games or falsifying

[08:45] any type of strategy to get the job done. We just pay the premiums. Okay. Our next one is overcoming short-term thinking. And to do this, basically this is employers working with employees that they have them agree that on any wage increases, a portion of that will automatically go to increase their savings rate. Now they’re specifically talking about 401k here, but I suppose it could be used in a bigger arena and I don’t see anything wrong with if you’re already living at a certain lifestyle and somebody adds to it, that’s great money to find a way to save or invest. Absolutely. I will agree with that. And I know many, many people that have benefited from just a slow ratcheting up of contributions and at least they’re saving or slash

[09:41] investing, whatever word you want to use in today’s context, but we really do need to give them credit for that because, Hey, they’re saving. It maybe isn’t the most efficient way. Maybe they could do a little better way, but they are taking the action, getting the results. And so, yeah, I love employers and I like the words you used. Was it collaboration or it was something like that? Not employers are working with or collaborating with their employees to help them save more. That that’s a cool thing. I think so too. I’m not so sure about the 401k part, but the idea of, you know, if you’re spending, if you get money that you didn’t already have and you don’t ratchet up your lifestyle, then that is a great

[10:25] way to catch up your savings. I like that. So, yeah, the next one is managing cash smarter. And this is kind of leveraging technology to track the way we spend money so that, you know, we can take a picture of our receipts, our cell phone can track our mileage, just basically using the tools that are out there to make us aware of the way that we’re spending so that we’re at least know where the money went. Yes, I am all for that. In fact, the prosperity economics movement is creating some new technology around this area that we’re super excited about because the mint dot coms and the, you need a budget, the YNAB style environments do not know how to treat life insurance as both an asset and a cashflow issue.

[11:15] So we’re going to create our own and I’m super excited about it. And there’s lots of good that technology is adding, you know, I’m able to Venmo my daughter money real quick if she needs it or I’m able to, you know, like you said, grab a picture of something and have that there and available. And I still am super, super grateful, immensely grateful for our bookkeeper who does all the work because even though you can pop online to do these various things, there’s still a human being involved. And that’s probably a good thing from a monetary standpoint, but yeah, awesome. Use those tools if they are helpful to you, to keep track, to pay attention, to increase responsibility, like we talked about a couple of points ago, then those are

[11:58] fabulous tools. And even though they may not be perfect, they’re getting people headed in the right direction. They’re getting people to pay attention. They’re getting families to actually talk about money, which I also think is super valuable and important. All right. The next is sparking a sense of healthy competition. And this is basically allowing you to take your financial information and compare it to other people in your same age bracket or income range or whatever you want to look up and see how you’re doing compared to everyone else. And they’re saying that this has had a natural increase for people to save and invest because they want to be as good as or better than their peers. Well, that’s interesting.

[12:45] And again, if that works and if technology contributes to that and enables us to do a better job as a society of increasing our savings, that’s awesome. The challenge to me will be to go back to your values because each person and each family has their own set of values that drive what they do with their money. As an example, to one family going overseas for a trip with their children is super important and super valuable because they really want their children to get out of the United States and experience life in the world. Whereas maybe to another family, their values say that they want to send their kids to church camp. And so obviously that is going to cost a lot less. And I don’t think that those can be judged or compared.

[13:31] So what I would love to see is, yes, let’s get some information out there, make it public, make it available to look up, but also to help people be clear on their values and use the money to support their particular values, their particular family’s set of priorities based on what their family decides is the most important. All right. And our final topic of the day is focusing our attention. And this is going back to the old system of using the envelopes where you set aside money for the car and you set aside money for, I don’t know, maybe a improvement project that you’re wanting to save money for. But it’s dividing up your savings into multiple, I guess, targets. And I’m not so sure I’m happy with that one.

[14:24] Well, it is interesting. I have a real good friend that still uses the envelope system. So if that works for her, then that’s fine. I do think people need to be aware that in many, many areas we can actually get our dollars to do more jobs than just one thing. And so what I don’t like the envelope system to be is education money’s here, retirement money’s here, pay off the mortgage earlier, you know, whatever other goals people come up with, because that is limiting. And just to make a point, we don’t want the mortgages paid off and saving for retirement or investing for retirement. I’m not sure that’s such a great idea. And so here you’ve got a case where if your dollars are specific and limited to just that one use and they can’t be used for other things.

[15:15] And that’s one of the reasons we have such a hang up with the 401K is it’s clearly money locked up and not in your control, not being able to be used for other things. So I would say that on the short term, if it helps you use the envelopes or whatever method to get your emergency slash opportunity fund handled to get, you know, maybe some monthly clothes shopping done or, you know, the kinds of things that people would save on a super, super short term basis, like less than six months. But anything beyond that, I believe that the more control and the more flexibility and the more use you have of your dollars, then the better off you’ll be around all of those dollars and what they can do for you and your family.

[16:02] And I’ll remind us all of a little acronym that I’ve got in one of the books, which is CLUE, C-L-U-E. You want to have control of your money. You want it to be liquid. Not all of the dollars, but you certainly want some of them to be liquid so that you can use them and treat them like equity. In other words, have the ability to borrow against them. And of course, 401Ks you cannot borrow against, whereas other things like life insurance, you can. So that little CLUE acronym, again, control liquidity, use and equity, is a good thing for people to remember as a little opportunity filter for the investment and savings decisions that they’re making. And then, of course, we have our seven principles of prosperity.

[16:44] And my gosh, if you haven’t looked at those in a while, I would really encourage you. Maybe I don’t know if on this podcast we can have a link to the seven principles. They’re part of our prosperity accelerator pack and they’ve been out there for a long, long time. It’s not like we created them. They’re just basic economic principles. But we have written them out in such a way that I think people will find them to be really valuable. And so if by chance you don’t have a handy copy, shoot us an email at hello at partners number four prosperity dot com. That’s hello at partners number four prosperity dot com. And we’ll make sure to send you a copy of the seven principles. Super. And, Kim, you have you have a special offer

[17:24] or a special free bonus for our listeners that I think would be appropriate if people wanted more information on what we’re talking about today. Absolutely. And this is an immediate download. So you don’t even have to wait for us to respond on the email. And it is available at partners number four prosperity dot com slash e-book. And it’s a e-book on why financial planning, the typical financial planning that’s out there, has failed. And we probably even cover the seven principles in the book, as well as some of our recommended suggestions for what people do work with around their money, both for saving and investing. And it focuses on our three main areas, cash, cash flow and growth without loss.

[18:12] So if you’re interested in any of those three areas, having your cash be stored in a better place, creating cash flow with your investments or looking at dollars that can grow without loss and yet still actually grow, then grab the e-book at partners number four prosperity dot com slash e-book. Super. Well, Kim, you certainly have provided a lot of value to me today. I’m sure our listeners got a lot out of it as well. We encourage our listeners to continue sending in our questions and comments as well. You can’t believe how much we appreciate it. We read every single one of them and appreciate your time in listening to us and your time into responding and being part of the prosperity economics movement.

[18:54] Again, this is no BS money guy, Todd Strobel. Special thanks to Kim Butler. Special thanks to all our listeners. We’ll see you all again real soon. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you. Visit us at partners for prosperity dot com. If you liked this episode, make sure you subscribe and leave a review.