I experienced something very strange last week. A college classmate and I were finishing a thought outside the hotel where I was staying. Our conversation began at dinner and continued as we walked down Lexington Avenue. We stopped to wrap things up outside the Gramercy Park Hotel. It was early evening and the smart set was just getting started.
If you’re not familiar with this part of Manhattan, the hotel offers a hip bar that attracts a young, progressive, crowd. Out of the door came a young woman, no more than recent college age. Apparently the noise in the bar was too much as she was rapt in conversation on her cell phone. She was a respectable distance from us, so we didn’t think anything of her… until she suddenly broke away from her phone, stepped toward us, and plaintively asked if either of us had a cigarette.
The question momentarily stunned us. Why would someone this young, with her full life ahead of her, want to smoke a cigarette? We didn’t mention it, but no doubt the thought of the recent passing of one of our classmates to lung cancer passed through our thoughts. Instead, we politely – and tersely – shook our heads “no” and went on to conclude our talk. Still, the episode brought to mind another conversation I had just had.
Ron Rhoades is a font of ideas that both stimulate and challenge. It’s no wonder that, while interviewing him recently (see “Exclusive Interview with Ron Rhoades: ‘I am opposed to the entire concept of government-run plans’,” FiduciaryNews.com, April 18, 2017), the ol’ synapses started firing. Some of his thoughts reinforced what we already know (pension plans present risks to employers). Some of his comments reveal a common sense too often lacking from policy makers (the marketplace should determine whether specific adviser fees are reasonable or not). The quote that really got me thinking was this one: “Financial literacy efforts, while effective for such matters as personal budgeting and proper use of credit, can’t overcome the huge knowledge gap that exists between individual investors and those who stand ready to prey upon them.”
We’ve been down this road before. Just because something is measurable doesn’t mean it’s worth measuring. Nowhere is this more apparently than the incessant nagging about fees. Sure, high fees are bad, but what is “high”? Absent the immeasurable metric of “value,” any discussion of fees is vacuous. The two go hand in hand. They are the Yin and Yang of any transaction. Indeed, the simplistically narrow reliance on fees has led to popular adages like “There’s no such thing as a free lunch” and “You get what you pay for.”
The most guilty arena of “measuring because it’s measurable” has to be public policy makers. Got a problem? Throw money at it. Still got a problem? Add a few regs here and there. Problem continues to exist? Admit defeat and fall back on disclosure.
Great. That kind of action is guaranteed to impress voters and insure the longevity of incumbency, but that’s about all. It doesn’t solve the problem. Of course, that was never the point. The point was to show action. And action is all that matters, not solving the problem. Why? Because you can measure action. And that’s why action matters.
But let’s look at the reality. If literacy were the panacea everyone makes it out to be, we wouldn’t have as many smokers as we do. If anything, thanks to any variety of media choices especially at younger people, it’s been hard to miss the massive literacy campaign aimed at educating the average American as to the health dangers inherent in smoking. And yet, despite all the dollars spent, the airwaves overburdened, and the pixels burned, nearly one in five U.S. adults between the ages of 25-44 continue to smoke. Yes, literacy doesn’t guarantee success.
Now don’t get me wrong. It’s not that I’m against education, or literacy, or anything that broadens one’s intellectual firepower. I enjoy the lecture dais, no matter which side of the microphone I happen to be on.
Education, however, has its limits. I can read and study all about the tonsorial arts, but, no matter how vigorous my personal literacy campaign, I could never give myself as good a haircut as an objective third party could (i.e., Hal, my barber). It’s not just my inability to shave the back of my neck without risking accidentally cutting an artery. All that book learning can’t replace actual experience. And I have no experience cutting hair. Heck, I’m barely adequate when it comes to trimming my mustache.
Face it, outside our particular area of expertise, we all benefit from active coaching. Whether it’s a barber to cut your hair or a fiduciary to make sure you always act in your best interest, it all comes down to one thing: behavioral control.
You might think you can cut your own hair, but if you do you can kiss that cover girl look goodbye. You might think you know everything there is to know about investments, but it’s awful tough to avoid those behavioral snafus researchers gain such joy in uncovering.
Please take a moment to consider what you just read. Now think of all those employee education meetings you’ve attended (or even led) about the importance of saving for retirement. When you look at those same employees, who’ve been given the same instruction about the importance of saving year after year, and you see they still aren’t saving enough, what must you conclude about the value of “literacy”?
Let’s take this one step further. If the typical employee fails to save enough despite non-stop education, imagine what happens when it comes to myopic decision making, cognitive bias, and the ravages of recency. (If you don’t know these terms, check out almost any book on behavioral finance.) Without the voice of experience riding shotgun, most folks find it difficult to defeat the demons of the behavioral faux pas, regardless of the number of education hours logged.
So, what’s the solution? The knee-jerk response might say “more disclosure.” Yep. That’ll work. Just like those warning labels on cigarettes.