6 June 13
If part of your OE took you through Austria and Germany, you’d notice how these two countries, which may have seemed somewhat similar from the outside, are entirely different. And if you looked at how the two countries approach organ donation in particular, you would never have guessed just how different they are.
Wait, organ donation? “What has that got to do with my money matters?” you’re probably wondering. It all has to do with choice and how things are set up, so bear with me.
You see, both Austrians and Germans would mostly agree that it’s a good idea to donate their organs when they die. Yet Austrians end up actually consenting 99% of the time, while the Germans just 12%. Why such a difference?
It all comes down to the way they’ve set it up in their countries: in Austria, they’ve decided to assume that everyone is an organ donor (you can opt out), while in Germany, only those who actively choose to be an organ donor are on the list (they have to opt in). And the markedly different results in these countries are repeated in many others around the world.
Most of us may think something is a good idea; we just don’t take the step to actually do it. That’s just what makes people tick. The good news is, we can take advantage of this – setting up our finances so that they run smoothly and get the results we want.
One of the reasons why automatic settings work so well is that we don’t have to do anything once they’re in place. Once we’ve found what works for us, we can just set and forget. If we procrastinate or inertia sets in, things move forward all the same.
Now if you’re reading this, you probably already think saving is a good idea, and it is: it provides peace of mind, it gives you options, helps you prepare for the future, etc. And setting up an automatic payment online into a separate account these days takes all of 10 minutes.
Some months ago I was playing with my AP settings online – makes you wonder how I spend my time, I know – and as a test I set up a regular fortnightly payment of $10 into my ‘rainy day account’. I figured I would turn it off after a couple of weeks.
Then the other day I discovered it’s still on, pumping in that $10 every two weeks. I just haven’t got around to turning it off. But since I need to be building my emergency fund anyhow, I’m not in a rush, either.
There are many other money matters in our lives that we can automate. If something unexpected happens, we can always opt out and do it differently once or twice, but the automatic setting can be our personal status quo.
Regarding lists, for example, those of you who attempt to shop with kids in tow will know how useful they can be. Now there certainly are times when I will go ‘off list’, but the default is set to stay on it – and the kids know that’s the way we normally do things. Saves heaps, especially when the store marketers put the sweets and treats at their eye level!
You will probably have made your own choices about what’s the norm for you, like bringing your lunch or not drinking during the week, for instance. You might break these rules once in a while for special occasions, but for the most part, you don’t even have to think about it.
Back from Europe and closer to home, we’ve got a great example of how opting in or opting out makes a big difference: KiwiSaver. Right now, if you are starting a job, you are automatically enrolled in a KiwiSaver default fund.
You still have a choice, but you need to actively choose not to be a part of it. Most people don’t opt out. Almost six years since KiwiSaver was set up, there are now more than 2 million of us in the scheme, saving for retirement.
Which brings up another reason why automatic settings work so well: once they are set up, they feel like the right thing to do. We also tend to trust others and follow their lead. Although it may not be right for everyone, many people will feel that being in KiwiSaver is sensible.
Although having 2 million of us in KiwiSaver is a good thing, it’s likely that hundreds of thousands are not in the right fund for our situation. Ending up in the default funds, young KiwiSaver members, for example, may end up with their money invested more conservatively than they need to and wind up with lower results in the long term.
However, being in a default fund is better than not being in one at all. Your savings, after all, are still growing automatically.
But to make sure you are in the right fund for you, fire up our KiwiSaver fund finder to find out what type of fund suits. At that point, contact the new provider and get them to switch you from your old one.
This of course shows the downside of default settings – they tend to stick. Yet another reason for this is because by the time we are in them, we see changing to anything else as coming at a cost, possibly difficult, and definitely more work.
But I suppose the point of all of this is that we need to set things up properly early on. If we get things sorted and on the right track, we can sit back and let the growing happen – automatically.