Archive for August, 2008

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The Pope Visits Mile High

August 29, 2008

Rising from the floor of Mile High Stadium, perched on a perfectly symmetric series of ascending circular platforms, stood Barack Obama. This was no blue-collar man, maybe not even a presidential candidate. The Pope was in town, and he knew exactly what the assembled worshipers wanted to hear.  He blamed American’s economic woes on Satan himself, Mr. Bush, and promised redemption. 

Middle-class wages have stagnated over the last few years. This has little or nothing to do with the current President’s policies. They have stagnated because technology has allowed businesses to move not only unskilled but skilled labor around the world, to find the skilled but meagerly paid to perform work. There is no President, no Congress, that will stem this tide. People who have marketable skills will be paid, people without marketable stills will struggle. Without adopting North-Korean-like strategies, governments can do little to reverse history’s march towards the boundriless movement of ideas and resources.

The problem with the above argument is that it doesn’t make good TV. And good TV is what everything is going to be about until at least early November.

This single biggest thing that government could do to raise the economic prospects off all citizens is to increase the educational opportunities for children born into disadvantaged circumstances. Such programs benefit the less fortunate directly, and the more fortunate by increasing the pace of our economic engine and ultimately returns to capital. The Democrats have rightly criticized Republicans for advocating some policies that favor the wealthy, but in this most critical area the tables are turned.  Mr. Obama, following Democratic orthodoxy and at the behest of the teachers’ unions, has proposed nothing creative or different in any substantial way to help students trapped in poor schools. The status quo, where wealthy families send their children to private schools, those of middling means move to the suburbs where the public schools are better, and low and lower-middle income families are left with the educational scraps will not be changed under his policies.

Allowing school choice for parents, as favored by many Republicans, is currently the only policy on the table that has any realisitc chance of dramatically changing the educational playing field for disadvantaged students. And dramatic change is what we desperately need.

Despite Mr. Obama’s rhetorical flourishes about how often Mr. McCain votes with the President, Mr. Obama has shown less willingness than Mr. McCain to break with party orthodoxy when necessary for good policy. Mr. Obama will not be able to tax, and wealth-transfer, his way out of the global movement of labor resources. To protect the earning power, and what little savings we have, of Americans he will need to break with the Democratic Party’s belief that only wealthier families should have a choice as to where they send their children to school.

Here’s hoping that a hugely effective Pope knows how to become an effective President.

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PBS Interview — Your Investments with Adam Bold, Part 2

August 24, 2008

Adam Bold, founder and Chief Investment Officer of the Mutual Fund Store, invited me to do an interview for his PBS show “Your Investments with Adam Bold.” Although filmed at the same time as the first interview with him I posted this material aired on a subsequent episode of the show. In the interview I discuss some steps the federal government could take to increase savings, as well as other issues surrounding savings. 

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Vanguard’s MoneyWhys

August 20, 2008

Just a short post. Someone at Vanguard Mutual Funds wrote about my book in their newsletter “MoneyWhys.” It is a short, well-written article that describes one argument made in the book for why Americans engage in over-consumption. Although I have been very critical of the mutual fund industry in some recent posts, Vanguard really is an exception to the rule in many ways. In particular, their funds generally have very low fees and they spend a considerable amount of time and resources educating their shareholders about financial planning and the mutual fund industry.

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Executive Paternalism

August 18, 2008

Improvements in public policy can gently coax people to save more money. But many of the important day-to-day savings decisions happen in the workplace. This post speaks to the libertarian paternalistic executive, an executive who would like to help their employees save more money, but does not want to infringe on their rights to do with their money as they please or to implement policies that will cost their company a lot of money. Here are a few ideas that will accomplish that.

  1. Implement the provisions of the Pension Protection Act  that now make it much easier for you to automatically enroll new employees in your 401(K) plan and to set default asset allocation of the plan to a lifecycle fund rather than a cash account. 
  2. Scrutinize the fees that your financial service provider charges for offering products in your plan. Pay particular attention to the annual management fees. Seemingly small differences in annual management fees can make big differences in the amount of money your employees have when they retire. 
  3. Limit the number of investment options in your 401(K). You don’t need that many options to allow employees to construct a diverse portfolio. Too many options will confuse them and often delay their asset allocation choice, leaving them with whatever default option is contained in the plan.
  4. Target women for financial educational seminars. Women are more likely to listen to financial advice than men. They also face more large financial decisions in their golden years because of their longevity relative to men.
  5. Be careful with your own conspicuous consumption. That consumption may put pressure on subordinates to mimic you, and thereby demonstrate that they have the same tastes as you. People tend to view others with similar tastes as smarter than those with tastes that are far afield from their own. Your employees want to look smart in your eyes. It is easier for them if they do not have to spend a lot of money signalling that they think like you do.

These are just a few ideas.  If you have additional ideas you are more than welcome to post them.

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Podcast from American Bankruptcy Institute

August 7, 2008

Here is a link to a podcast I recently did for the American Bankruptcy Institute.  It is about 20 minutes in length. It mainly covers the book, but does take a detour into current politics, talks more extensively about the particular challenges of getting younger Americans to save than the book does, and comments on David Brooks’ recent editorializing,

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Repositioning Thrift

August 3, 2008

One story that I always tell my MBA students is about the demise of Oldsmobile. For many years, decades really, Oldsmobile was an aspirational car for the retired and almost-retired crowd. If you wanted a big luxury car with a little more of a sporty appeal than a Cadillac then Olds was the ticket. But then, gradually, tastes for automobiles began to change and General Motors found themselves with a dying brand, a nameplate that was losing sales year after year.

What did GM do with Oldsmobile? Well, they tried to do what marketers call reposition it. And a radical repositioning it was. They wanted the public to think of Oldsmobile not as a big, dowdy ride but an exciting, sporty car for the younger driver. They were trying to totally reinvent its brand image. To do that they brought out new, completely redesigned, models with racy body lines and higher revolution engines.
Accompanying this new engineering was a very expensive advertising campaign with the slogan “This is not your father’s Oldsmobile.” Even though those advertisements have been off the air for years now you may remember that phrase — its exposure was so broad and so often repeated.

Did it work? No. Oldsmobile was discontinued in 2004. Why didn’t it work?  Well, GM certainly had and continues to have a myriad of problems so I doubt there is only one answer. But here is an important part of the answer. No one believed that it wasn’t “their father’s Oldsmobile.” The nameplate had such strong perceptual associations with images and thoughts of being old, having the added problem that the word “old” was imbedded in the name of the vehicle, that no amount of reengineering and marketing communications could change it. In marketing, we understand that changing people’s minds about a product, or an idea, or a political candidate, is immensely difficult. And GM failed with Oldsmobile.

I think we are failing in how we communicate the goals and benefits of savings to younger workers. The average 25 year-old does not aspire to “retire.”  Much like the “old” in Oldsmobile the word “retirement” brings with it a host of perceptual associations, often born of the stereotypes of “tired” old people. The twenty-something set does not look forward to the day when shuffleboard is their daily recreational activity. Even the word “thrift,” a word that is contained in the title of my book on the subject, conjures images of someone knitting while scanning the paper for coupons. These are not thoughts and images that inspire action.  Retirement seminars, retirement planning sessions, on-line retirement calculators all suffer this important deficiency in the way they are  presented, or packaged.

Younger people do aspire to “financial independence.”  Rather than speaking of retirement, conversations and tools which help people determine how to save so that they will achieve financial independence earlier in life are likely to be better received.  While the economics of a “Financial Independence Calculator” or a “Financial Independence Planning Session” may be nearly identical to their retirment counterparts the marketing is much better.

We need to begin speaking in new terms to the Millenial generation, a group that on the whole saves very little. The language of “pensions,” of “retirement,” of “security,” while certainly effective for those who remember the Great Depression are less potent now than the language of “independence” and “self-determination.”  The math can remain the same, but the marketing needs to change.