This is a write-up of our breakout group discussion from the OpenIdeo Meetup at Pier 28 last night.
In our breakout group we shared stories around the challenges individuals face in trying to understand the appropriate amounts to save and to invest to achieve the milestones they would like in their lives. Two of our break-out participants were recent college grads and they opined on the difficulties of understanding IRA’s & 401k plans, when to start saving, how much to start saving, and how this would map to their future goals to one day own a house, have children, send kids to college, retire, donate to philanthropy, and so on. For several of them, one of their main resources was to reach out to friends and family to get input from loved ones and people close to them. For my part, I pointed to a series of discussions held over the prior six months in which I had helped my father understand his retirement needs and current savings and investment options. We also considered the plight of many professional athletes: upwards of 50% of the pros are bankrupt within 5 years of leaving their respective leagues (78% for NFL, 60% for NBA: http://www.munknee.com/78-of-nfl-players-go-bankrupt-within-5-years/). So, while I/We had initially considered that the financial empowerment challenge would primarily include low income populations at or below the poverty line, it became clear that if you take a broader view of ‘most in need’ then financial empowerment is something that touches on large swaths of people across a wide range of age groups and socio-economic levels.
One leg of our mini-discussion centered on financial literacy as it relates to financial empowerment and the prevailing notion that people need to be self-reliant and able to make decisions around their individually directed savings plans. The shift in the United States from Defined Benefit plans to Individually Directed Plans (IRAs, 401k, 401b, etc) may represent a fundamentally flawed shift of responsibility. If a group of professional money managers are unable to successfully run a defined benefit plan on behalf of their beneficiaries, who thought it would be a good idea to take a distributed approach and shift that responsibility from professionals to plan constituents? Here’s some info on that shift form the *.gov => http://www.ssa.gov/policy/docs/ssb/v69n3/v69n3p1.html. In response to this thought, we asked, are there mechanisms to address the shift towards self-reliance around mastering adequate financial literacy for savings, investments, and retirement and move it in the direction of community support and group solutions? We asked, would it be possible for groups of like-minded people with similar milestones and earnings power be able to collectively outsource the complex decisions around financial management to professionals? Could the multiplier effect achieved allow larger groups to collectively access better advisors and managers? If one million people living at the poverty line each paid in a dollar to a platform, how could that $1 million be used to seek out legal, accounting, and planning advice? Another group that presented earlier pointed out that it is nearly impossible for people without means to access high quality legal, accounting and planning advice.
A common topic which came up in our breakout group and also within other breakout groups was how to address financial literacy. Our group's thoughts on this were around what would be the impact of providing people with personalized data visualizations for their finances and goals. We discussed how a visual map of a person’s earnings, projected earnings, expenses, and projected expenses would not require a ton of financial literacy; it could be easy to understand without needing in depth knowledge of the power of compounding & the time value of money (1$ at 10% doubles every 7 years and the take-way principle there is .. start saving early), interest rates, mutual funds, ETFs, equity markets, credit markets, and so on. A couple of other points which came up were:
<>How to make the knowledge transfer low friction under the concern that people don’t want to spend time on it
<>How to make the outreach catch on
<>Could data visualizations create awareness of different trajectories that positively changed behaviors
<>Could peer group accountability be used to bring people together
<>What would lead to changes in behavior around spending and saving
I feel compelled to comment on the fact that the needs of people at or below the poverty line may be dramatically different than the rest of the population, and that the research and ideas above may not be super-helpful to those communities except by hopefully helping to keep people who are on a suboptimal trajectory from losing what they have and becoming a part of those low income communities (e.g. 78% of NFL and 60% of NBA athletes playing their last season who within 5 years will slip into that group).