People are strange, and most plan advisors can attest that participants in their plans are no exception. One thing advisors wonder about is why it’s so difficult for people to save money today in order to ensure a better long-term future. Behavioral finance, so popular in helping DC plans create better outcomes, might explain that our future selves are strangers to us, and we’re not likely to make big changes in our current behavior to benefit strangers.
Leveraging what is known as the “Proteus Effect” — that is, how changes in images of ourselves online affect our behavior — BoA’s Merrill Lynch has created their version of a time machine to show investors an image of what they might look like in 40 years. Basically, the website takes a person’s picture and ages it. You can try it yourself here.
Behavioral research also shows that people are more likely to put money away for retirement when that “stranger” becomes more real. For example, researchers at Allianz’s Center for Behavioral Finance, headed by UCLA Professor Shlomo Benartzi and Dan Shapiro of the London School of Business, are also working on a behavioral “time machine” to help participants see into the future. Right now, for most plan participants, the future doesn’t look good.
