February 16, 2006
From the desk of Jane Galt:Why don't we have PSA's on savings?
Ted Barlow's post on all the things that the government pays to advertise made me wonder something: why don't we have lots of PSAs on personal finance? After all, that is one area where we know that people are often incredibly ignorant, and where a little advice could presumably go a long way. In general, I think public health/public awareness campaigns are a complete waste of time and money, and more than occasionally do more harm than good (anti-drug/anti-smoking campaigns, for example). But I'd be willing, as a taxpayer, to spring for a series of commercials that:
* Told people how much of their income they'd need to save in order to maintain their lifestyle in retirement--and how much *more* they'd have to save if they started later, rather than earlier* Made people aware of just how ruinous making the minimum payment on credit cards is
* Taught people how to analyse whether they should rent or buy
* Encouraged people to pay off debt as quickly as possible
* Educated people about things like annuities, insurance, and mutual funds (obviously, the commercial would have to be a quick--but informative!--teaser for a website)
* Advised our fellow citizens to "look before you leap"--get a rational estimate of the potential payoff before shelling out for training courses, home improvements, or other alleged "investments"
* Told people how much life insurance and disability insurance they needed
* Discouraged people from buying individual stocks, or trading frequently, by laying out the costs of frequent trading
* Told people not to pay attention to Morningstar ratings, which are a crock (mutual funds kill off low-performing funds, so all Morningstar is is a giant excercise in survivor bias), but index their money instead.
* Urging people to have at least 12 months of expenses in liquid savings (savings account or money-market fund)
After all, if these things worked, they'd not only help the people involved, but also actually relieve some of the burden on the rest of us for things like Social Security. And government estimates would be (though it pains me to say it) a more neutral source than, say, insurance companies assuring you that you need lots and lots of homeowner's insurance.
Of course, that would be my ideal campaign. But even a cruddy campaign might well do some good. So why have I never seen one? I can think of a few explanations:
1. There are such campaigns, but I don't watch the right channels.
2. The government doesn't want to run commercials that make people feel insecure about their finances, since for many people this is tantamount to admitting that the government is not doing a good job.
3. Running commercials that tell people how much they need to save will alienate powerful constituencies, such as mutual funds, insurance companies, and credit card firms. Even if the government did run such commercials, it would have to cater to those constituencies (in much the same way that the USDA diet recommendations are hampered by the need to make the beef and dairy industries happy1), so that if they did run such PSAs, they would be of low quality, and possibly even do more harm than good. This discourages well-meaning bureaucrats from proposing such a thing.
4. Personal finance is one of the few areas of modern American life that we don't have a government agency in charge of. The government would run such PSAs, if only there were a Department of Savings to oversee it.
I suspect it's a combination of 2, 3 & 4. What do y'all think?
1 I tried to use the Food Pyramid Tracker to monitor my diet, but it continually yelled at me for not consuming enough meat, bread, and dairy products, while going way over my fruit and vegetable allowance. This is your government's idea of good nutritional advice, courtesy of the American Dairy Council.
Posted by Jane Galt at February 16, 2006 12:28 PM | TrackBack | Technorati inbound linksWhile there are some basic rules that apply to everyone - don't max out your credit cards, for example - most forms of financial/savings advice will vary according to one's specific situation. Saving as much money as possible is good if you're young, want to start a family and buy a house some day, and have no pension plan at your job; it's less important if you're 60 years old with a good pension plan and your children are off on their own. All of this adds a level of complication in creating financial-advice PSA's.
In contrast, quitting smoking makes sense for just about anyone.
Tinfoil hat alert: If we were financially self-sufficent, the government would have less of an excuse to "fix" things for us, and thus less hooks to hang their power on.
Sorry, but it's what came to mind. Maybe I need therapy...
You and Ezra Klein might agree on this point. See his latest piece up at TPMCafe's DrugBilDebacle...
E Klein, "Conservative Utopians," TPMCafe Drug Bill Debacle, 14 Feb 06,
http://www.tpmcafe.com/node/26718
Cbasken you took the words out of my mouth.
Wasn't "public education" touted as being able to teach young people about thrift, responsible spending behavior, etc.? Instead, we get Diversity classes by cognitively dissonant
teachers who preach color blindness while asking us to take not of and tolerate every perceived and stereotypical prejudice exihibited by other cultures.
The direct impact on 'the children' is too low. "Encourage your children to save and if they aren't horribly unluckly they may or may not have a slightly nicer retirement." just doesn't have that soccer mom ring to it.
I never did trust Morningstar, I alway went with the Forbes review, picked B/B funds with solid management. Bought and held and made money most of the time, except when pretty much everyone was loosing. Then you just file the statements and wait it out.
I likd cbasken's answer, too. My thought was very similar. If rules of good personal finance were widely known, and known to be widely known, then there would be an increasing consensus that many people who are in trouble financially ought to have known better, and so do not necessarily deserve to be bailed out by the state. But such a consensus is anathema to a welfare state increasingly in need of constituents as relative poverty (within out society) becomes relatively posh (compared to the median in other societies). So the welfare statists have to invent "income volatility" as a problem the state needs to take care of. If people start to expect one another able to insure against volatility with their own savings, then what!
2,4, and 6 are in the only things on the list that really lend themselves to one minute ads. I've seen a lot of people lose their shorts with 8, none of whom are likely to become wards of the state - they're more likely to simply work until they die.
It's really a lot simpler than that: few people pay attention even when financial information is spoon-fed to them. A lot of employers put a lot of effort into trying to educate people about their 401(k)s and still see lousy contribution rates and way too much money in money market funds and Fidelity Magellan.
Saving need be no more complicated than simply setting money aside. It is the monetary supply inflation of the FED that makes financial expertise mandatory for everyone.
Regards, Don
Analysis is incomplete. In your world nobody making 20K a year working a 40 hour week job would use H&R Block. One reason we can't have simpler taxes is that it would destroy IRS, H&R Block, bunches of finatial consultants.
It's hard to find anything useful for people to do with all this increasing productivity.
There is an answer to point #1: In Oregon public schools, you are given a class in high school called "Personal Finance" that covers many of Jane's PSA points. It must be taken to graduate; you can test out of it, but it is difficult. (75% correct or above on the test)
Whether or not you listen is up to you. (That one episode of the Cosby Show with Theo and the money was prominently featured.)
Urging people to have at least 12 months of expenses in liquid savings (savings account or money-market fund)
I wonder how many people actually do this when living from paycheck to paycheck seems to be the norm. Less than 1%, I bet. But 12 months sounds a bit excessive to me, and perhaps six months would be enough.
Running commercials that tell people how much they need to save will alienate powerful constituencies, such as mutual funds, insurance companies, and credit card firms.
This is probably the main reason.
No tinfoil hat needed, unfortunately. The "powerful interests" aren't limited to lenders and churners. What part of the US economy consists of consumer buying? How disruptive would be the shift resulting from wider-spread financial responsibility? How many people working in retail, for instance, could find equivalent jobs in a realigned economy?
Besides, there's a huge pool of people out there that just aren't going to give up consumption beyond their means, given their means and what they see around them. And there's no avoiding bailing them out down the line. It's the old problem of a big enough debtor owning the bank.
Well, there's always The Clark Howard Show on syndicated radio. He talks about almost everything you mentioned. He's always trying to educate his listeners. I know he's succeeded with me more than a few times. What the government fails to provide, private industry steps in to save the day!
Looks like a job for Oprah!
But seriously, there is no lack of good but simple financial advice. An
Amazon search for "personal finance" yielded 4324 books. Google yielded 150 million websites. One of my favorites is a blog: http://www.iwillteachyoutoberich.com/toc.html
Interestingly, I think this problem will take care of itself. In today's economy, it is hard NOT to learn these lessons if you are under the age of 40. If you don't know them already, you'll learn fast the next time you lose your job. There is no need for PSA's, reality is the best teacher.
While there are plenty of 20-something people with high credit card balances, in my experience the Boomers are the financial idiots. They are the ones "trading up" to a bigger, more expensive home at the age of 50, a time when financially sane people would be looking forward to writing their final check to the mortgage lender.
Younger people, by contrast, have all had to deal with unemployment, temporary work, and high prices. And even if one particular young person has never worked as a temp, been fired, or found themselves priced out of something, such as the housing market or a particular college, they most certainly have a dozen friends who have experienced one or more of these things.
Wouldn't it be a little hypocritical if the government was telling us to pay off our debts, save for the future, and be more financially responsible? It's not so easy when you can't print your own money or raise taxes to balance your personal budget.
People shouldn't have to worry about those things... in a civilized world, all of this "saving for the future" would be taken care of for you.
At least that's what a worryingly large number of voters seem to believe.
I remember when Michael Chertoff tried to get the word out that individual preparations for disaster would be useful. He was widely denounced and laughed at, and "duct tape" (one of the things that would be useful for individuals to have) became a national joke. And of course, when thousands of people who made not the slightest preparation for disaster found themselves in a bit of a jam after Katrina, it was all the fault of Chertoff and other Federal officials. Because Federal officials are supposed to plan for the future and prepare to meet all eventualities - the little people shouldn't have to worry their pretty little heads about any of it and the poor dears will only mess it up if they try.
I think #4 is correct. Every federally-funded "public service" advertisement I can recall originated within some government bureaucracy.
But 12 months sounds a bit excessive to me, and perhaps six months would be enough.
If you, as an experienced professional, enjoy working at McDonalds or Wal-Mart in order to make mortgage and car insurance payments, then sure. Otherwise, a year's buffer can be a very useful thing to have when the the layoff comes and you have a wife and two kids to support, and your new job then requires a move.
This happened to the family of a distant cousin; I don't know what level of savings they actually had when the layoff came, but whatever the case, they made the transition gracefully.
One of the problems with the 12 month rule is that it is beyond non practical for people less than 10 years out of school (I was going to say
As to why these ads don't exist: 2, 3, & 4 of course.
Well, when I read the list of possible PSAs, my first thought was boy, would Citibank and Charles Schwab be pissed. On further reflection, I thought Remax and Best Buy would also be among those against such PSAs.
So I vote for reason 2.
There has been something very similar to what you describe in New Zealand for a few years now. The Retirement Commission (a government agency) runs a website called http://www.sorted.org.nz, which gives advice about things like organising your money and finding out what your debts are really costing you. There are tv ads promoting it.
I can't vouch for most of the information there, but I did find their student loan calculator useful. I took one look at how long it was going to take to pay my loan off, and doubled my weekly repayments!
Huggy:
"Analysis is incomplete. In your world nobody making 20K a year working a 40 hour week job would use H&R Block. One reason we can't have simpler taxes is that it would destroy IRS, H&R Block, bunches of finatial consultants.
It's hard to find anything useful for people to do with all this increasing productivity."
Sorry, but so what? You're not going to convince many people that eliminating the Tax prep industry is a bad thing.
There's a class issue as well. "People with savings" would be equated to "affluent people", and the government would be criticized for spending public money on such people instead of on the truly needy.
What're y'all talking about? There's already a PSA out there for savings education:
http://www.devilducky.com/media/41738/
Jane,
CounterColumn has an article about the Pentagon spending almost $7M on exactly this.
Most of the basics are covered in high school economics classes, but let's be honest, kids don't remember crap from year to year. Want to place bets on how many of your final exams from 11th grade you could still pass? Kids learn about basic economics before they have money and credit and jobs and college debt. I don't think it's the place of the government to make these PSAs, but frankly, the ones you describe are more defensible than some of the ones I see on screen.
Analyze whether to rent or to buy? Why not a PSA on something truly useful: whether to lease or to buy? You see, I've had my eye on this rather nifty 2006 Jaguar X-type SPORT, and quite frankly, well, I just can't decide if I want to (scary music) OWN it or pay way too much money for it and then give it back....
--->But 12 months sounds a bit excessive to me, and perhaps six months would be enough.
---If you, as an experienced professional, enjoy working at McDonalds or Wal-Mart in order to make mortgage and car insurance payments, then sure. Otherwise, a year's buffer can be a very useful thing to have when the the layoff comes and you have a wife and two kids to support, and your new job then requires a move.
A year's buffer is one thing. A year's buffer in LIQUID SAVINGS??? That's ridiculous. Why the hell would I want 70k in LIQUID savings for that rainy day? I'm not going to spend 70k in a day. I'm going to spend it over the course of a year. There are better investment opportunities, even risk free ones, like bonds, than a money market fund.
But honestly, I don't think people are behaving all that irrationally: why waste time on personal finance? As kids, they don't have to; as adolescents/college students they can get massive amounts of student loans and credit; they expect to have high high income relative to that in the future (so deficit spending is valuable), as adults, they'll have massive available credit, and worse case, bankrupcty means they can wipe the debt away. What is it they are doing wrong? They can get bailed out nearly any day--even from cc debt, they can bargain to pay it off at pennies on the dollar with the lender.
So, the notion that we should be saving more isn't necessarily backed up by the reality. If you know the Govt will bail you out, why save?
A year's buffer is one thing. A year's buffer in LIQUID SAVINGS??? That's ridiculous.
Perhaps the best plan would be to have liquid savings for the first three months, and use the rest of the money to pay off your debts and mortgage or to invest it in mutual funds. In the statistically unlikely event that you actually start needing this money, you can do the necessary arrangements during the first three months.
A year's buffer is one thing. A year's buffer in LIQUID SAVINGS??? That's ridiculous.
The "year's buffer" was my expression. If you read the post carefully, then you know that what Jane posted was:
* Urging people to have at least 12 months of expenses in liquid savings (savings account or money-market fund)
If you absolutely require $70k in order to maintain the expenses of your current lifestyle, then either you are living way beyond your means and need to cut back NOW, or else you will not suffer in the event of a prolonged unemployment -- be foreced to sell a few assets to cover said expenses, maybe, but you will not suffer.
I'd just give every high school senior a copy of "The Wealthy Barber" by David Chilton. Easy to read format that covers the basics of personal finance. Probably beats most textbook versions.
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