Nudge, the Diet Coke investment and the 1983 pound
11 July, 2017
This week Dr Richard Thaler won the Nobel Prize for Economics. He’s the self-described ‘lazy’ behavioural finance expert who wrote the book ‘Nudge’ and has advised the UK Government (amongst others) about how to tackle the pensions savings gap.
His work will impact many of us. The basic gist is that we can encourage better behaviour around concepts like saving by how we position people’s choice. “Choice architecture.” Here’s an example. If your workplace pension gave you the choice of a fund which aimed to return 3%, 5% or 7% over the long-term, most of us would select the 5% option. If they gave us the choice of a 1%, 3% or 5% option, most of us would probably plonk for the 3%. It’s all about how we frame the question and position the defaults. It's a bit like choosing the wine which isn’t the cheapest but second from the bottom!
He also talks about the ‘Save More Tomorrow’ concept. Investing has always been a hard gig to sell because you’re essentially selling deferred gratification. It’s bit like asking a 5 year old if they want one Chupa Chups now, or two Chupa Chups in an hour.
However, we’re much more likely to agree to good behaviour in the future. So if we get the choice to say, “yup, when I get a pay rise next time, stick 10% of that into my pension automatically” – well that doesn’t hurt so much. I recommend his books for some insights into how our flawed minds make decisions!!
The £1 investment
Next up, Aviva has been shopping. Last week they took a majority stake in tiddler Wealthify (https://www.boringmoney.co.uk/best-buys/stocks-shares-isas/wealthify-stocks-and-shares-isa/) (a so-called ‘robo adviser’). When we’ve tested Wealthify, lots of people have loved it (not for your traditionalists, mind) but felt nervous about the small new brand behind it. Well that fear is largely alleviated now. Here’s why I mention it. Wealthify are so keen to build a customer bank that they will let you open an investment account with just one pound. One measly quid! Now there ain’t much downside risk in that! For any nervous bystanders to the stock market, that is the best possible way I can think of to get the investor experience whilst limiting the downside risk to the cost of a bottle of Diet Coke! We get asked a lot by parents with young adult kids how they can get them started – here’s an option. Frankly, everyone in Britain who doesn’t have an investment account should go and open an account there today until the new Board ups that minimum!
Adios round pound
Now talking of pounds (did you like that smooth transition!?) from midnight on Sunday the old round pound which has been with us since 1983 will cease to be legal tender. You can either adopt my daughter’s suggested approach and “spend it all on chocolate on Saturday” or just take 5 minutes to sort through the coin jars/ piggy banks/glove box in the car, and use up the coins over the weekend. If you don’t get to this, you should be able to take old coins to a branch of your bank and exchange them there after Sunday’s deadline. Given that not every supermarket trolley/parking meter/ticket machine has been adapted yet, it’s probably not a bad thing to keep a few old ones rattling around.
Finally we threw ourselves on your mercy this week and opened up a Trustpilot account. With the hope that most of you would say nice things about us and help to spread the word. Thank you so much to everyone who did – so far so good! If you have enjoyed our stuff/learnt anything/been helped, we’d really appreciate a review (https://uk.trustpilot.com/review/boringmoney.co.uk).