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Americans are being handed the financial car keys without much help figuring out how to actually drive, argue two economists in a new book that takes aim at the personal finance industry. Harvard’s John Campbell and Imperial College London’s Tarun Ramadorai say the US has shifted enormous responsibility onto individuals—especially when it comes to being financially ready for retirement—while surrounding them with products that are “too complex for many people to understand.”
In Fixed: Why Personal Finance Is Broken and How to Make It Work for Everyone, they contend that tweaks like high school money classes and behavioral “nudges” such as automatic 401(k) enrollment aren’t enough. The idea that consumers can simply study their way out of bad outcomes is unrealistic, they say—particularly for lower-income and less-educated households. Their answer is what they call a “shove”: more assertive regulation and standardized, easy-to-understand products. Two ideas they float in their interview with CBS News:
- They envision a basic “starter kit” of offerings, including a universal, Roth-style retirement account that opens automatically with a first job and follows workers from employer to employer. “We have this immense profusion of accounts,” says Campbell, “and as people change jobs, they very often end up with multiple 401(k)s. But at the same time, people who work for small businesses or who are self-employed—maybe they open an IRA, maybe they don’t—but the contribution limits are much lower, and so we have an access problem.”
- On mortgages, they argue the US system is freezing workers in place: homeowners locked into 2% loans don’t want to move and take on far higher rates, even for better jobs. Other countries, they note, allow “portable” mortgages that move with the borrower, or “assumable” ones in which a buyer can take over the seller’s low-rate mortgage if they qualify.
Writing at the Next Big Idea Club, they argue that the issue is only becoming more pressing: “People live longer than they used to, and in smaller families. That means they have to save more for a longer retirement without being able to rely so much on help from younger relatives.”
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