When It Comes To Retirement Savings, Are We A Bunch Of Marshmallows?
There was a classic longitudinal study conducted by Stanford psychologist Walter Mischel. It involved pre-school children and marshmallows. Individual children in a room were offered a marshmallow but, if they waited until the researcher returned after a short (but unspecified) time out of the room, they would get TWO marshmallows. The kids consistently responded in one of three ways: They took the one marshmallow instantly; they waited until the researcher returned and got their two marshmallows; or they waited as long as they could but ended up succumbing to the solo marshmallow on offer. Crudely, the kids were either ‘grabbers’ or ‘deferrers.’
Hey that’s interesting but so what? Mischel continued to follow the progress of the kids for the next forty years. On every measure of success, the deffering children went on to do better than the grabbing children – financially, academically, relationships, health, happiness. Deferred gratification is an aspect of impulse control which Daniel Goleman identified as a pillar of emotional intelligence. Maybe you started out thinking about whether your own kids are grabbers or deferrers but now you’re thinking back to your own childhood… How you doin’!?
Mischel studied individuals, not societies or nations, but I have a nagging and a gnawing that we kiwis are a nation of grabbers and that’s reflected in our diminished and diminishing returns.
This concept of deferred gratification has its largest observable tangible manifestation in retirement savings. You have to wait a very long time for your marshmallows. (If you’ve lost your teeth, you’ll still be able to eat marshmallows!)
It’s not just grassroots kiwis having problems with their long-term financial behaviour. A UK study showed that of employees eligible for schemes entirely funded by employers (ie free money), where the only onus on the employee was that they proactively acted to enrol, only 51% enrolled. Wow. In their book ‘Nudge’, Richard Thaler and Cass Sunstein write about their own employer’s retirement savings scheme at the University of Chicago. Bear in mind that all these people are professors and such. (There may even have been rocket scientists.) Some two-thirds of academics approaching retirement still had their mothers as the primary beneficiary of their insurance. Before we laugh at the mad professors, go look up how many kiwisavers never shift from those default providers!
It has been suggested that a seventh default provider be set up to be managed by the ‘Guardians of the New Zealand Superannuation Fund.’ Guardians? I think this group sounds like it includes Green Lantern, Thor and Iron Man (though, hopefully, not Captain America.)
Is it laziness or human nature? I just visited the ‘Sorted’ website. It asked me for my year of birth via a drop down menu that defaulted to 1910! It took me four clicks to get to 1966. (Hey, that’s a lot of work for my forty-five-year-old wrists.) Maybe the default should be the average year of birth of those who visit their site? I’m guessing those born in 1910 aren’t surfing the web for superannuation options. Frankly, at that age, I don’t think I want to know what they are looking for on the internet.
Politicians can, and will, continue to tinker with schemes. We can blame them for that but New Zealand is a representative democracy and when it comes to mucking around and not collecting nuts like good little squirrels, it’s sad to say that they probably are accurately representing us. They’re grabbers and so are we. So, tinkering with entitlement ages and employer contribution levels that get traded off with lower wage rises and so on isn’t ever going to provide a long-term meaningful solution. Never. It requires a societal attitudinal change and, as Mischel proved, it all starts with the children. (Oh God, won’t someone please think of the children!) You remember the children, the ones who as adults won’t be able to afford houses, yet we’re relying on them to fund both our debts and our retirement income through their taxes.
The good news is that being a grabber or a deferrer isn’t something you’re born and stuck with (like your height or being from Hamilton.) Mischel with Albert Bandura proved that deferring was a set of learnable skills. Will power, it seems, is skill power. So, let’s set up the schools to teach and model delayed gratification behaviours for the sake of the future of our country’s very existence. After all, if there’s anyone who has extensive experience of not getting what they want for prolonged periods of time, its teachers!