Monday, August 22, 2011


Ok, I admit I am writing this in advance of posting.  It's the end of July in my world and the government default was just avoided.  Now the television news is featuring FAA employees and construction workers who are laid off due to more bickering in Congress.  By the time this gets posted, the media will have moved on to other crises, nonetheless, I just thought of a couple of great examples.

During the above two crises, the news featured A) people on Social Security who were worried that the checks would not go out on August 3, and B) people working for the FAA telling the cameras that they have rent payments and other bills coming due.  The view presented, of course, is:  how are these people going to survive and who is going to bail them out?

My concern is behavioral:  why don’t these people have any savings at all?  For all of Suze Orman’s books and appearances on Oprah and years of personal financial advice about paying yourself first and building an emergency fund of at least 6 month’s requirements, these people didn’t know what would happen if they missed one paycheck.  This is the problem!  It’s not how to bail them out this time, so that we can bail them out next time.  That’s a very healthy and selfish approach for the advocates and politicians; it gets them funding and re-elected.  But it doesn’t serve the people.  It gives them no incentive to change behavior, and behavior is the root cause of the problem.

What if, while they are tinkering with Social Security, someone asked the question: What can we do to help people save money so that there is not a panic immediately when a check is late or a job is lost?  What do we do to make people understand that the original intent of Social Security was as a supplement to their savings, not a full pension?  It’s too late for today's retirees.  Their behavior has already determined what outcome they are enjoying, but what about the next couple of generations?  Their current behavior will lead to consequences that are, for the most part, not a pretty picture.  As long as we go on rewarding unhealthy behavior, that’s exactly what we will continue to get.

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