3rd August 2012
We can blame many things for the state of our retirement savings plans – economists, bankers, politicians, the Chinese, globalization, sunspots, socialists, capitalists, journalists, investment analysts, financial advisors or even just bad luck. But in the end the only person that's really responsible is the one staring back at us in the mirror in the morning.
Personal responsibility is the adult basis for grown-up investing. Unfortunately our infantile brains resist our every attempt to train them.
We are increasingly likely to demonstrate what's known as psychological neoteny: many of us are passing the point at which our brains have matured without developing the basics of responsible adult behavior. If people can't control their drinking habits, drug addictions or sexual behavior they're not likely to be able to invest intelligently.
So, a generation or more of increasingly obese semi-adults are reduced to being force-fed intellectual baby-food in the form of one-sided political ideology dressed up in the clothes of balanced and fair debate. One study in the UK suggested that a majority of teenagers expected to become rich and famous by appearing on reality TV.
In fact it's phenomenally hard for even a genuinely self-aware adult to control their damaging urges – we've seen literally dozens of ways in which we can be fooled by our brains in situations involving money, and we've hardly even looked at the non-financial implications of this for health or the environment. Meanwhile there are whole industries out there that have evolved to exploit these weaknesses. Some deliberately, and some accidentally through a long process of trial and error.
The idea that there's such a thing as an immoral business model is no longer credible. We've seen organizations that laughably tell us that they can be trusted exploiting the weakest and most vulnerable members of society; increasingly, of course, it's hard to find anyone who can't be exploited as our juvenile adult population hasn't heard of the concept of self-control.
So, we shouldn't be under any illusions: the only person who can look after our own interests is ourselves, and the community of like-minded we gather round us. As learning self-control as an adult is far harder than as a juvenile it's also our responsibility to pass this lesson on to our offspring.
Self-control is the key. Financial education on its own doesn't appear to solve these issues – probably because merely understanding financial terms and the ability to calculate interest rates is nowhere near enough to help us control our damaging urges. Behavioral bias is a far deeper problem, and requires much more than a superficial understanding of money.
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