Make 401K contributions the default? How about educate our population.
Dan Ariely, a behavioral economist at Duke University, was on American Public Media’s “Marketplace” yesterday to discuss the pro’s and con’s of required 401K contributions. According to the story:
“The White House wants to require companies that don’t offer 401k’s to start. And then to automatically deduct contributions from people’s paychecks.”
The objective of this proposed mandate is to get more people to save for their retirement. It is true that if this mandate were passed more people would set aside money for their later years because they would have to make an effort to opt-out of their company sponsored retirement plan.
However, I still maintain that the root of the problem is not in 401K rules. More needs to be done to educate our public with regard to household financial matters.
Instead of talking about requiring people to save for their 401K, let’s educate them so that they can decide for themselves that the benefits of saving, utilizing tax-free growth, and compound interest outweigh the present benefit of spending their entire paycheck.