It’s always the same scenario. December is a fun-filled month of holiday parties and overindulging, right up to New Year’s Eve…followed by the cold, harsh reality of January and the realization that it can’t go on.
That’s it, I say to myself, I need to get in shape. I’m going to start exercising again! So I dust off my running shoes, locate my squash racquet and wash my workout gear. I get all fired up about the idea of making a new start. I’m optimistic and ready to go.
Yet, when you look at my long-term behaviour, does it actually change? Not so much. And I suspect I’m in good company—why else would there be so many enticing offers of gym memberships advertised each January?
In fact, David Laibson, Robert I. Goldman professor of economics at Harvard University, told a similar story at our 15th annual DC Plan Summit in Whistler, B.C. In his keynote presentation on behavioural economics and DC plans, he talked about how he and his wife shelled out $1,000 apiece for annual gym memberships. He anticipated that he would go to the gym at least twice a week over the course of the year. But how often did he actually go? Four times—in total.
So why is there such a gap between what we plan to do and what we end up doing? Why is sustained behaviour change so hard? And what does all of this mean when it comes to saving for retirement?
Laibson explained the motivations behind our decision-making and offered some behavioural “nudges” that employers can use to help improve savings outcomes for DC plan members. Ideally, he proposed, employers will automatically enrol employees in the plan with an option to opt out, since few employees will actually take that option. Employers that aren’t comfortable with that strategy can use active choice instead. In other words, rather than having employees opt in to the plan, make them actively check a box to choose to save or not save, so that sheer passivity doesn’t lead to non-participation.
He also advised setting higher default savings rates—“6% is the new 3%,”Laibson explained—and “stretching” the employer match on contributions. (You’ll find more detailed coverage of his and other sessions in our April issue). But his overall message was that it’s less about changing employees’ behaviour than about nudging them in the right direction—and relying on their natural tendency toward inertia to keep them there.
A key part of saving for retirement, it seems, is saving employees from themselves. So if we want them to exercise proper saving behaviour, perhaps the first step is just to get them in the gym.
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