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Top 6 reasons why Personal Finance success starts with choice architecture

Americans are struggling with long-term financial security.

"A quarter of US adults have no retirement savings and only 36% feel their retirement planning is on track."

- PwC and The Federal Reserve, 2021

"The pandemic is making the retirement crisis worse"

- Forbes, 2020

"22% of adults in the U.S. have less than $5,000 saved for retirement, while another 15% have no retirement savings at all."

- Investopedia and a 2019 Northwestern Mutual survey

"...our brains make it so hard to start saving for retirement"

- CNBC, 2021

"35 percent of American households had no money saved in any type of retirement account. For those that do, the median household retirement savings was $1,100."

- The St. Louis Federal Reserve, 2018

"The student debt crisis is one that spans generations, with about 8.7 million Americans aged over 50 still paying off college loans."

-Bloomberg, 2021

But why is this? Are Americans uniquely poor savers? Or is there something common in humanity's shared DNA that challenges all people to save for retirement? Also, what is the best answer for achieving financial security? The government and employers provide programs encouraging saving. Given American's ongoing personal finance struggle, why have those programs have been mostly ineffective? Is there is a better way to take personal responsibility for our retirement?

This article unpacks these questions. We will start with why saving for retirement, particularly in the United States, is challenging. We will discuss what choice architecture is and why it is an effective part of making the best personal finance decisions.

We discuss solutions and educational resources empowering you to become the captain of the best personal finance decisions!

About the author: Jeff Hulett is a behavioral economist and a decision scientist. Jeff is a personal finance professor at James Madison University. Jeff is an executive with the Definitive Companies. Definitive helps people and organizations make the best decisions using time-tested and patented technology. Our solutions are developed from the research-informed behavioral sciences and decision sciences. Jeff holds advanced degrees in finance, mathematics, and economics.

Why are we so bad at personal finance?

This question has been discussed by many, yet the difficulty persists. The personal finance and saving challenges, including a concluding section on solutions, serve as the article's table of contents:

  1. American cultural messages teach us to spend now

  2. Evolution and how our brains naturally make decisions encourage us to spend now

  3. Decision confidence is important. Achieving conviction in our confidence is challenging

  4. Data serves the consumer product marketing companies' self-interest, data is noisy, and data may be intended to deceive

  5. Big consumer brands provide choice architecture designed for their own self-interests

  6. The decision process may lack urgency or frequency

Conclusion: The concluding section provides a personal finance solution. The best personal finance choice architecture is necessary for the best personal finance decisions.

1. The American consumer marketing culture teaches us to spend now

James Choi is a finance professor at Yale University. He teaches personal finance. In a recent interview, he was asked why people are so bad at saving [i]. He said:

"If we just look at Americans in the 1950s — we had much lower income in the 1950s than we do now, and personal savings rates were a lot higher. Or you can look at China, where their per-capita G.D.P. is a fraction of what ours is. And yet [China's] personal savings rates [are much higher.]"

In the interview, Choi expressed 2 theories about why Americans are saving so little:

Choi Savings Theory 1: The U.S. financial system, including insurance, is much more developed as compared to earlier days or other countries today. -> Comparatively, Americans need to save less today.

Choi Savings Theory 2: The marketing of consumer products has improved over time. Companies are better at marketing credit cards, mortgages, and other financial products. -> Comparatively, Americans are culturally influenced to save less today.

Dr. Choi's first saving theory seems reasonable, yet incomplete. After accounting for the financial system's improvement, Americans have undershot the actual savings needed. There must be more to our savings challenges. The second savings theory about consumer product marketing is intuitively intriguing. Consumer product companies are committed to providing CURRENT period revenue and profitability to their investors. Consumer product companies' incentives encourage the general American marketing message:

It is better to spend now than to save.

Also, consumer products companies are competitive. If one company does not encourage its customers to "spend now," then a competitor likely would. Consumer product companies compete in a "spend now"-encouraging systemic framework. Not competing as the system rules dictate could reduce profitability. Most consumer products companies have developed financial tools encouraging "spend now." These tools include financing options making it very easy for their customers to spend now.

This "spend now" cultural mindset has a negative long-term consumer wealth impact. Savings habits, also known as payment hierarchy, are very powerful for driving long-term wealth. Proper savings habits are particularly impactful early in our savings lifecycle. A "spend now" cultural mindset may reduce savings and lead to an opportunity cost in excess of $10 million for retirement. [ii]

In the concluding section, we will discuss how to overcome cultural marketing messages and improve decision-making for achieving long-term wealth.

2. Our brains naturally encourage us to spend now

Neuroscience and evolutionary biology teach important lessons impacting decision-making and personal finance. As we explore next, spending more now is a naturally occurring feature of our neurobiology.

  1. Good news! We are naturally very good at making certain decisions. Bad news: We are only naturally good at making decisions relevant to our environment over 1,000 years ago! [iii] Natural selection and evolution are great. People have been evolving to adapt to our environment for over a half million years. Natural selection and evolution are SLOW.

  2. Humanity's ongoing brain evolution is perpetually lagged. A thousand years ago, making simple but important decisions -- like whether or not to run from a lion -OR- whether or not to fight a rival tribe member -- was crucial to our survival. The fact that you are reading this demonstrates your ancestors were VERY good at these simple, NOW-FOCUSED life-perpetuating decisions. Today, your DNA is still running the formerly life-sustaining but currently outdated genetic algorithms. Your genetic decision algorithms are tuned to decisions only relevant long ago! Doctor, medical researcher and longevity expert Peter Attia said: "Evolution is no longer our friend, because our environment has changed much faster than our genome ever could."

  3. We are naturally CHALLENGED to make today's complex decisions. Perhaps in 1,000 years, we will evolve to greatly improve our complex decision-making processes. Recognizing our natural complex decision-making challenges is the first step to improvement. With some help, it is certainly possible to make better decisions. Most modern decisions fall into this naturally difficult and complex decision-making category. These are the decisions with many criteria (what is important to me or us) and many alternatives in our choice set. Personal Finance decisions, such as the decision to save and how to save, are challenging. Personal Finance decisions are complex FUTURE-FOCUSED decisions.

The eye doctor: Example of an evolutionary-friendly choice architecture

Choice architecture is the decision process environment to help make optimal decisions. Eye doctors help you determine the best eye lens prescription. You are likely familiar with the common eye doctors' choice architecture. They reveal 2 lenses in quick succession and ask, "Which lens is better, A or B?" They then follow this approach to evaluate other lenses in a series of pairwise comparisons. By following an elimination of inferior alternatives approach, the eye doctor settles on the best eye prescription for you.

This eye doctor's approach is consistent with evolutionary biology and how our brains make the best decision. Notice, the doctor did not say: "Here are 10 lenses at once, which one is the best?" Why? Because the brain naturally struggles with making unassisted multi-alternative decisions. The pairwise approach is a proven, evolution-consistent method to make complex multi-criteria, multi-alternative decisions.

Choice architect and psychologist Barry Schwartz [iv] sums it up well:

“Learning to choose is hard. Learning to choose well is harder. And learning to choose well in a world of unlimited possibilities is harder still, perhaps too hard.”

The biggest takeaway from our brain biology suggests our long-term personal finance strategies must be intentional. Our brain's default setting is NOT to save.

In the concluding section, we will discuss an evolutionary-friendly approach to assist our brains and improve decision-making.

3. Decision confidence is important. Achieving conviction in our confidence is challenging

Confidence is an emotion. It is called the "decision emotion" because it provides the emotion-based signal as to whether or not we "feel" we made a good decision. [v] Decision confidence is important. Confidence is an emotion-based signal informing our decisions and motivating us to productively move forward following a decision. Next is a car-buying confidence example:

Car buying is expensive, plus we have many preferences to weigh. Some of those considerations are objective, like: "I need safe transportation for travel to work." Others are more emotion-derived judgments, like: "It feels good to accelerate fast!" Generally, people have 5-10 preference criteria to weigh. There are many car-buying alternatives and price points. Confidence is when we feel good about the decision to buy a particular car. Confidence will help us negotiate, buy, and then we will feel good about using the car after we purchase it. A confidence-inspiring process minimizes buyer’s remorse.

We all have biases and assumptions we make about our personal finance decisions. [vi] Critically, we do not always realize when we are under the influence of those biases or assumptions. They likely cloud and reduce the reliability of the confidence signal. This is tricky! The operative question then becomes:

"How do we achieve 'conviction in our confidence' when it may include false signals generated by hidden biases and assumptions?!"

In the concluding section, we will discuss how to achieve conviction in our confidence and the best decisions.

4. Data, both good and bad, serves the consumer product companies' self-interests.

Our world is drowning in data. Fake news and other poorly curated data tends to obscure truth-informing signals. One must work at curating their data to transform potential data noise into a well-informed signal. Information curation of the “average person” is one of the most important individual duties of our democracy. [vii] Information curation is also important for achieving personal finance success. Unfortunately, the current trend is less toward information-curation-based reason and more toward noncurated data-based emotional reactions.

Those that sow noncurated data do so for a reason -- with a typical reason being to provoke a loosely considered emotional response. It is easier to sell products or ideas when the buyer's emotional state is aligned to the seller's position. Those emotions often come from an internal place contrary to information curation; that is, from an internal place of information insecurity.

The January 6, 2021 attack on the U.S. Capitol [viii] certainly appears to have elements motivated by information insecurity. As stated in the U.S. congressional committee investigation report:

“The Committee’s investigation has identified many individuals involved in January 6th who were provoked to act by false information about the 2020 election repeatedly reinforced by legacy and social media.”

If political parties or elected officials are willing enablers of information insecurity, it is not such a leap to assume consumer product companies may do the same. Information insecurity, along with the consumer marketing "spend now!" messaging, tends to crowd out a good decision process.

In the concluding section, we will discuss how to enhance data curation and improve decision-making.

5. Big consumer brands provide choice architecture designed for their own self-interests

So far, we have been discussing the challenges to make good personal finance decisions. But what about companies? Do they help us make good decisions? The answer is sometimes but you are smart to be skeptical. Big consumer platform companies' self-interests will likely NOT align with yours.

Broadly, choice architecture is the decision process environment to help make optimal decisions. Most sellers today have their own customer-facing choice architecture. Think of Tesla, Amazon, Netflix, your favorite restaurant, political parties, or a company 401k provider. All of them have choice architecture tools (like websites, smartphone apps, menus, sample ballots, etc.) to help you make a decision. The challenge is, and studies show [ix], that the seller's choice architecture is designed to help the organization optimize its profitability or some other objective. The best choice for the seller does NOT necessarily provide the optimal outcome for you.

As an experiment, go to your favorite consumer platform app, like Amazon or Netflix. Make a search for your favorite product. For example, say you go to Amazon and search for "Dark Roast Coffee." Now, have a few friends searching for the same thing, but on their separate Amazon apps. What do you find?! Your friend group has different options at the top of the list. Why? Because Amazon has figured out how to isolate each of you, in the service of optimizing their economic objectives. It is a divide-and-conquer strategy, based on data analysis and the consumer platform-optimized choice architecture. The platform firms count on being able to develop a 1-to-1 client relationship, where you are unlikely to understand how they are interacting with others. By the way, I have done this informal experiment with a diverse group of friends. It is interesting and eye-opening! [x]

The platform firms know that their default choice architecture is VERY powerful. In fact, Behavioral economist and Nobel laureate Richard Thaler [xi] said:

"People have a strong tendency to go along with the status quo or default option.... Just as no building lacks an architecture, so no choice lacks a contex."

Thaler suggests there is no such thing as "noncoercion" when it comes to choice. Our default choice environment is always a "coercing" part of the choice.

Yes, this should freak you out a bit. The underlying "spend now" cultural messages are being compounded by manipulative supply-side choice architecture. Many platform firms are manipulating the choice experience to improve their profitability at your expense. To be clear, within reason this supply-side choice architecture manipulation is completely legal. The Latin legal phrase "Caveat Emptor" is clearly on point → Buyer Beware!

In the concluding section, we will discuss using your own choice architecture and improving decision-making.

6. The decision process may lack urgency or frequency

Personal Finance educators appreciate and research shows that personal finance education is most effective in the context of a relevant, near-term decision. [xii] This should not be a surprise. People learn better when they are invested in that learning and expect they will earn a "learning return" in the near future. The decision process challenge is twofold:

  1. Personal finance decisions occur irregularly throughout our life. There is such a time gulf between specific decisions that we may forget how that decision was made.

  2. Personal finance returns are often earned at a distant future point from when the decision is made. Back to our evolutionary biology, this time gulf causes us to naturally but inappropriately discount the benefits of those decisions that will pay off in the future. [xiii]

For example, maybe you buy a car every 5 years or so. Perhaps you buy a house every 10 years. Maybe you change jobs every 2-5 years. You will likely only make the undergraduate college decision once. Preparation for infrequent and complex decisions is both challenging and a critical success enabler.

As such, the best way to prepare is at the all-life-decisions process level. All personal finance decisions share the same structure and process approach. You make decisions all the time. Apply this decision process to a near-term decision. Getting in the habit of following a good decision-making process will make it easier to apply it to a lifetime of decisions in a timely way.

Good decision process habits

This leads to a lifetime of good personal finance decisions

The behavioral sciences and economists teach us that determining one's utility is a significant decision challenge. "Utility" is the economist's word for benefits or criteria preferences of a particular purchase. The utility evaluation starts by deciding what is important to you about a decision. As we discussed in the earlier car example, there are typically 5-10 decision criteria preferences. The challenge starts with just listing and accurately defining those preferences. The big jump in difficulty occurs when we need to weigh the criteria preference trade-offs. Then, once your utility is defined as a weighted preference criteria model, it must be applied to all the alternatives. In the car examples, the alternatives are the many car choices.

Next, we discuss choice architecture solutions for a lifetime of decisions. The solution is for both personal finance decisions and broader decisions having financial significance. Choice architecture helps to easily evaluate your utility and enables you to make the best decisions.

Conclusion: The best choice architecture for the best decisions

In 2019, The Financial Literacy and Education Commission authored a report including recommendations for “Five Principles of Effective Financial Education.” [xiv] The commission was chaired by the Department of Treasury and included wide-ranging membership from the federal government. One of their recommended principles includes:

"Make It Easy to Make Good Decisions and Follow Through"

Earlier, we highlighted the significant personal finance challenges and the tremendous potential loss of wealth from poor personal finance decisions. As such, achieving this recommendation needs a new approach.  In this section, an accessible, consistent, straightforward, and unbiased decision-making smartphone app is suggested. Ease is achieved by following a proper decision process.

Our commitment is to provide an easy-to-follow and app-supported decision process. The decision process builds confidence in Personal Finance and broader financially significant decisions. Next, we describe a decision solution providing for the commission's recommendation.

Definitive Choice is a smartphone app that provides a straightforward user experience and is backed by time-tested decision science algorithms. It uses a proprietary "Decision 6™" approach that organizes the preference criteria (what is important to us?) and alternatives (what are our choices?) in a series of bite-size ranking decisions. Definitive Choice streamlines your evaluation and weighting of the benefits of a personal finance decision. Since it is on your smartphone, you can use it while checking out alternatives or doing online research. It is like having a decision concierge in your pocket!

Definitive Choice enables you to enter alternative costs. Where available, the app is linked to relevant cost data sources to auto-load those costs. The dashboard provides a rank-ordered list of "best choices," completely tailored to your preferences and alternative costs. Definitive Choice encourages decision collaboration. For any decision, you may invite others to participate as much or as little as you may desire.

Also, Definitive Choice comes pre-loaded with many decision templates. You will want to customize your own criteria, but the pre-loaded templates provide a nice starting point. Decision criteria are a way of creating "what is important to you or us" categories about your personal finance decision. Definitive Choice turns the table on big consumer platform companies. Definitive Choice puts the power of choice in your hands.

To get started, we provide articles for common personal finance decisions. These articles are curated by decision scientist and behavioral economist Jeff Hulett. Check out our article series to provide insider tips and access to the decision tools to help you make the best personal finance decisions.


[i] Dubner, Are Personal Finance Gurus Giving You Bad Advice?, Freakonomics interview with Dr. James Choi, Episode 518, 2022

[ii] Hulett, Budgeting like a stoic, The Curiosity Vine, 2022

See section 3, Pay Yourself First. The payment hierarchy approach and the payment hierarchy cash flow models are provided. This demonstrates the power of savings habits and the potential $10m+ opportunity cost of the "spend now" cultural mindset.

[iii] Hulett, Our Brain Model, The Curiosity Vine, 2020

Hulett, Origins of our tribal nature, The Curiosity Vine, 2022

These articles further explore neurobiology. Included in these articles are several citations for the science and philosophy of the brain and mind.

[iv] Schwartz, The Paradox of Choice, 2004

[vi] Hulett, Changing Our Mind, The Curiosity Vine, 2021. Please see section 1b for a discussion of decision biases called "Belief Inertia."

[vii] In 1903, former U.S. President Theodore Roosevelt (1858-1919) gave a speech at the Sorbonne in Paris, France, titled Citizen In A Republic. This is the same speech that gave us the timeless “Man In The Arena” passage. Roosevelt discusses the importance of the “average person” in our democracy.

“But with you and us the case is different. With you here, and with us in my own home, in the long run, success or failure will be conditioned upon the way in which the average man, the average woman, does his or her duty, first in the ordinary, every-day affairs of life, and next in those great occasional cries which call for heroic virtues.”

- Theodore Roosevelt, bolding added

[viii] Congressional Committee Members, FINAL REPORT Select Committee to Investigate the January 6th Attack on the United States Capitol, 117th Congress Second Session House

Johnson does a nice job describing the impact of choice architecture, particularly as rendered by default and sort options. See Chapter 5, "Decisions by Default." He makes the point that choice architecture “designers” - like the sellers - do not always have the best interest of the “choosers” integrated into the choice architecture. This is a clarion call for being your own choice architect!

[x] Diversity is an important differentiator. The platform algorithms will group data by socio-economic or other available discriminating variables. This informal experiment works best across diverse friend groups.

Matthew Jackson, an economist at Stanford University provides an aligned perspective. In a recent interview, he said:

“People tend to associate with other people who are very similar to themselves. So we end up talking to people most of the time who have very similar past experiences and similar views of the world, and we tend to underestimate that. People don’t realize how isolated their world is.”

An interview, Freakonomics Radio, Stephen Dubner with Matthew Jackson, "How to Change Your Mind", episode 379, 2022

See Section 1: Best Practices for Delivery of Financial Literacy to the Public

[xiii] Hulett, Great decision-making and how confidence changes the game, The Curiosity VIne, 2022

"..inappropriately discount the benefits of those decisions that will pay off in the future" is known as availability bias. We discuss availability bias in the decision-making context in section 1, The Origins Of Confidence.

See Exhibit B: Summary of Recommendations


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