Individuals face a multitude of choices but do not have a clear grasp of the interconnectedness and implications of these decisions.
Financial education is not the answer. Not when, as Olivia Mitchell and Steve Utkus pointed out, “an individual would have to have the computing capability to solve many interrelated decades-long, time-value of money problems with massive uncertainties about their future earnings, health, tax rates, family composition and time of death” – to say nothing about knowing what the market levels or cost of living will be – to get it right. When most individuals are faced with this reality, the natural human response to decision making under these conditions is inertia – in other words, do nothing.
Given this dilemma, we believe there are still some useful guidelines that we can apply: