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Don’t Do Anything Stupid

Don’t Do Anything Stupid

| December 14, 2017

I have been a member of the Colorado Financial Planning Association (FPA) for several years now and I do pro bono work regularly for 9 News “MoneyLine 9” and also at the annual Denver Financial Planning Day in Lakewood.  Just this month, I read an interview of FPA legend Dick Wagner who died on March 28th this year.  Dick wrote a book about financial planning titled “Financial Planning 3.0, Evolving Our Relationship with Money” where he makes the case that money is the “most powerful and pervasive secular force on the planet, which speaks to huge responsibility.”

Over the years, Dick came to realize that his personal value proposition was in three areas: helping his clients to save more, spend less, and to “not do anything stupid,” which covers a lot of ground.  Saving more and spending efficiently are the two keys to building financial wealth and not doing anything stupid is the way of keeping it.  He observes that one “definition of idiocy is taking a risk you don’t need to take, in order to accomplish the goals you want to accomplish.”  This speaks to a key financial planner role “to advise people on how to make decisions that are in alignment with their goals and without the risk that can jeopardize those goals.”

Over the Thanksgiving holiday, I read the 2008 book “Nudge – Improving Decisions about Health, Wealth and Happiness,” by the 2017 Nobel Prize in Economics recipient and behavioral economist Richard Thaler and coauthor Cass Sunstein.  "Nudge" discusses how organizations can help people make better choices in their daily lives.  "People often make poor choices—and look back at them with bafflement!" Thaler and Sunstein write. "We do this because as human beings, we all are susceptible to a wide array of routine biases that can lead to an equally wide array of embarrassing blunders in education, personal finance, health care, mortgages and credit cards, happiness, and even the planet itself."  Thaler and Sunstein coined the term “libertarian paternalism,” which is the idea that it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice.

Nudges are subtle changes in context that help us avoid making bad decisions, although we will still be completely free to choose.  In 2004, Thaler and Shlomo Benartzi authored a report “Save for Tomorrow:  Using Behavioral Economics to Increase Employer Savings,” which made a very simple recommendation in how 401k providers set up their enrollment defaults.  Instead of the default being non-enrollment, the nudge is to default new employees into their 401k plans at a moderate rate of savings, say 5%, if the employee takes no action.  Another nudge is to also make available a choice for employees to “save more later,” by electing to have their savings rate increased by 1% every year up to some cap.  An article in Marketwatch just last month suggested that the implementation of Thaler’s theories of auto-enrollment and auto-escalation in workplace savings accounts may have added as much as $29.6 billion in retirement savings so far!

I agree with Dick Wagner’s focus on growing and protecting wealth, and particularly on his passion for helping his clients to avoid making big mistakes.  I also admire Thaler and Sunstein’s focus on helping people have an easier time making great decisions that are in their own long-term benefit.  We see the aftermath of big mistakes, both mistakes of commission and omission, and many of them could have been avoided or greatly minimized with better planning.  Think of parents dying without wills or life insurance, business partners in turmoil with no operating agreements, unprepared heirs receiving large sums of money.  We routinely see investors holding portfolios that are not well suited to their goals or disposition that create the potential for poor decisions in the future.

Last week, I was making my rounds at Costco looking to see if there was anything interesting and unexpected on the shelves and I came upon a keychain blood alcohol content breathalyzer called the BAC track.  I have never had my blood alcohol level tested before and I thought it would be interesting to learn more about how some of my favorite craft beers affect me, especially the double or triple IPAs.  My first test involved having a single strong craft beer and I was surprised to see my BAC at 0.04% - just below the Colorado limit!  I have done a few other “tests” over the past few weeks and I now have a much better idea of how strong craft beers affect my ability to stay safe.  We use financial and behavioral diagnostics that are similar to the BAC track to identify dangerous financial situations that can lead to big mistakes.

To Learn More

January is a great time of the year to set new financial goals and evaluate your current strategies and risks.  We would love to share with you some of the nudges we use to help our clients save more money, spend and grow their money more efficiently and avoid big mistakes.  If you are interested in a complimentary initial meeting, call Jenny at 303.900.4018 or email her at to set up a time.  We provide comprehensive financial planning and investment management on a fixed-fee retainer basis and we are passionate about helping our clients grow their wealth efficiently and avoid mistakes!