Archives for savings



If You Care About Costs . . .

This is the first in a series of posts about the problem of excess fees charged to defined contribution retirement plans, a subject I’ve been researching with Quinn Curtis.  Our findings about the pervasiveness of excess fees spurred me to reassess my own retirement investments.  I was embarrassed to find that, among other things, my old Stanford University 401k was invested in “CREF Stock Account,” which uses a combination of “active management, enhanced indexing and pure indexing” and charges 49 basis points (.49%) as its “Estimated Expense Charge.”  Now 49 basis points is not an outrageously high fee, but it is substantially higher than the fees charged by a low-cost index. 

So I called TIAA-CREF and asked for help in rolling over my Stanford account to a Fidelity IRA.  The TIAA CREF rollover specialist asked why I wanted a rollover, we had the follow brief exchange: Read More »



Encouraging Pessimism for Greater Savings?

During the Social Security lecture to my class of 500 freshman, most expressed disbelief that the program would exist when they retire.  Like a young colleague of mine, they were sure they would never collect.  

Wrong!  I can’t see the program being abolished.  It is very popular, and its potential bankruptcy is one of the most easily dealt with policy problems we face:  just raise the age for regular benefits by one year in each of the next four quinquennia, raise the taxable base for FICA, and voilà — problem solved.

But perhaps my students’ pessimism is a good thing.  If they believe this, and act on their beliefs, they will set aside more for their private pensions — saving more. Given the low American saving rates over the last few decades, maybe I should encourage their pessimism!



Training to Save in Ghana

Freakonomics fans will already know that financial literacy is a hot issue for researchers – it’s in everybody’s best interest to get people making better financial decisions, but frankly, we’re not terribly good at it.  The natural response is that if you just explain to people how to make better decisions, they’ll do it, but as we’ve heard in the podcast, it ain’t necessarily so. Just taking rational, clear-thinking adults and explaining how to make better financial decisions makes them feel good, but doesn’t necessarily help them make better decisions.

So we wondered if we could fix the problem by backing up the process and starting early, when kids were still in school.  And we decided to do it in a place where people can use all the financial help they can get – Ghana, which has one of the lowest savings rates in Africa. Read More »



Lottery Loopholes and Deadly Doctors: A New Freakonomics Radio Podcast

Season 2, Episode 5

Our latest podcast is called “Lottery Loopholes and Deadly Doctors.” (Download/subscribe at iTunes, get the RSS feed, listen via the media player above, or read the transcript below.)  This is the final episode of five one-hour Freakonomics Radio specials that have been airing on public radio stations across the country. (Check here to find your local station.) 

These hour-long programs are “mashupdates” — that is, mashups of earlier podcasts which we’ve also updated with new interviews, etc.

In two weeks, we’ll start releasing a series of brand new podcasts. Among the topics to listen for: the selling of souls, the value of college, and the strategic use of jerkitude (that is, acting like a jerk).  Read More »



The Retirement Robbery

Since putting email back in its corral, I’ve turned some recovered time to reading actual books in print — the latest being Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers by Ellen E. Schultz. If a nation of sheep shall beget a government of wolves, then the lesson from Retirement Heist is that today the shears are sharpened with numbers.

Retirement Heist is, as one blurb describes, a “meticulously researched and gripping as a crime thriller.” Each chapter explains, with detailed research data and outrage-generating examples, yet another method corporations use to steal retirement benefits and mask the theft behind accounting shenanigans. It is one of the few books (since Cadillac Desert) to describe outrageous behavior so well that I threw it across the room. Read More »



Cues to Save Money

Americans have a notoriously low savings rate, a problem we explored in a podcast about prize-linked savings plans. In another podcast, “A Mouse in the Salad,” Richard Thaler (author of Nudge) discussed “anchoring,” a cognitive shortcut whereby we make decisions based on an anchoring number even if it is randomly generated.

A new NBER paper (ungated version here) by Yale’s James J. Choi and Cade Massey, along with Emily Haisley of Barclays Bank and Jennifer Kurkoski of Google, shows that anchoring very much affects how people save (or don’t save) their money. Read More »



Lottery Loopholes and Deadly Doctors

Season 2, Episode 5

Americans have a famously low savings rate: a Harvard survey found that half of us, if faced with an emergency, couldn’t come up with $2,000 in 30 days. Most people would rather spend than save — and one of our favorite expenditures is playing the lottery. Last year, we spent more than $58 billion on lottery tickets, or roughly $200 per person. As entertainment goes, the lottery is pretty cheap – a dollar and a dream, and all that. But as an investment, it offers a dreadful return, which is why the lottery is sometimes called “a tax on stupid people.”

This episode looks at a little-known financial initiative that might help people save money while giving them the thrill of the lottery. Read More »



How Much Did Americans’ Financial Illiteracy Contribute to the Great Recession?

We’re working on a new Freakonomics Radio podcast about financial illiteracy, a topic we’ve visited a few times on this blog. Two guests you’ll hear from in the episode have held the same title: chairman of the White House Council of Economic Advisors.

First up is current chairman Alan Krueger, whom I asked what would improve if Americans were more financially literate:

KRUEGER: I think first and foremost, we’d probably have greater savings. People are often in a situation where they have to live paycheck to paycheck. That’s something I think we need as a country to work to improve. Most importantly I think we can improve income growth for the broad middle class. But many people who seem to have the wherewithal to save for the future find it difficult to save.

Read More »