It’s a combination between being unable to envision the future, and having banks that don’t help us out at all.

Question: Why aren’t Americans wired to save?

Dan Ariely: So, first of all, it's kind of interesting that savings patterns have changed since the market tragedy of 2008, but if we talk about early on what was happening in the U.S., the reason for not saving is the same reason for not doing all kinds of other things, right? We don't exercise, we don't eat healthy, we have unprotected sex. I mean, there's lots of things like it and the big issue is that we have one thing we want now, and another thing that we want in the future, and when we focus on this tradeoff between not and the future, it's very hard to focus on the future.

So, think about eating healthy. You vow to be on a diet, you go to a restaurant, and the waiter comes with a chocolate soufflé, right? You have a long-term wish to be good, but you have this short-term desire to consume this chocolate soufflé, and the short-term desire often wins. We have a long-term desire not to procrastinate. I mean, there are lots of things like it.

So, that's the basic story of lots of things that we delay. Now, money actually becomes even more difficult than other things because it's very hard to imagine what the benefits are to saving. So, imagine that you see a new bicycle, a new pair of shoes, or something today. You know exactly what you are giving up if you are not buying it, what are you gaining in the future if you are not getting it. So, you are giving up the bicycle today, what is it in the future? What will happen if you send another $1,000 to your retirement fund? What difference will it make? It is very, very hard to figure out.

And on top of that, I also think that the banks have been doing a very bad job. So, when you know, you don't go to these every time, the experts ask you two stupid questions. The first stupid question is, how much of your salary now will you need at retirement? How are you supposed to have an answer for this? Ah, this question, I know the answer very well. What's the right answer for this? It's very hard to figure out.

The second stupid question is, what's your risk attitude? And we actually know that depending on what is on people's mind at the moment, they can have high risk attitude and low risk attitude. Nobody really knows what the risk attitude is. What does it really mean? So, if I started talking to you about how you felt in the last market turmoil and how was it to feel one day when you're portfolio went down by 10% and you lost all of this money. And then I ask you what's your risk attitude, you'll tell me a very different answer then if I ask you to tell me how much you enjoyed the Bahamas and how much do you want a beach house and so on.

So, people in the financial industry ask us these two stupid questions, and then they go ahead and spend millions and millions of dollars optimizing based on these ridiculous questions. And I'll tell you a kind of a sad story. Some time ago, I was invited to the announcement of the Fidelity My Plan Calculator, and they basically had this unveiling about this calculator and so on. And it's an unbelievably simple thing. You basically have seven or five questions, I can't remember, they ask you and then they tell you at the end they tell you need to save $4.2 million dollars. Now, I can't save $4.2 million dollars. It's just not going not happen and nobody in that industry is helping me figure out what will happen if it's less. What happen if it's 3.5, what happens if it's 2.1? Nobody is helping me doing any of those things. So in fact, the industry is also not helping us. I think of saving as running a marathon with nobody tells you what the end point is and how far you have been going. So, lots and lots of things make it difficult.

Recorded on November 16, 2009