When the brains we use today to make investment and retirement decisions evolved, millions of years ago (yes, millions), survival was very precarious. Human life used to be a sprint now it’s an ultra-marathon. We have brains designed to survive 20-30 years now making “decisions” for life spans that will often extend beyond 80+ — especially for women. Pretty scary.
"Live Long and Prosper" — Maybe
One of the biggest challenges now facing human societies is providing for massively extended life spans around the globe. Lifespans where we all may live longer lives post-work/in “retirement” than our working lives. How will the new, much longer, periods of post-worklife “dependency” be paid for!?
Behavioral economics, psychology and brain science have proven that our minds instinctively choose to use resources now and consume in the moment with, effectively, no thought or behavior targeting the future.
Our ancestors lived very short lives so planning or behaving for the future didn’t make any sense when most people didn’t live past child rearing.
Boy, have things changed.
So when faced with “choices” about consuming money and resources now vs. the future – there is no contest. Our minds tell us to consume now – because there likely will be no future. That was true when our brains evolved eons ago— it is the opposite of the truth now.
Remember, when we say “brain” we mean “hardwired!” via nature and nurture and genetics. For pretty much all of us.
So future planning and deferring current consumption is acutely painful and aversive and counter all of our natural impulses, instincts and brain processes. It is pretty much impossible for our brains to even conceive of investing in the future let alone behaving as such.
What this hyperbolic discounting does is leads to chronic disinvesting in the future. It is not just that we don’t defer consumption but that we disinvest in our futures. That’s dangerous – especially when pretty much all of us will now have greatly extended futures.
An analogy might be like buying a drag racer as a family car. It gets where it needs to go very fast – but it can’t go far. And can’t fit a baby car seat!
Hypercounting Immediate Loss = Pain, Hyperdiscounting = Future Danger
What most financial services people miss is that forgoing current consumption, saying “No” to current drives/impulses/compulsions, is extremely painful. It actually is coded by our brains as a physical attack. That’s a guarantee we can make.
It will always hurt – not so much to save – but to not consume – right now. Forgoing current consumption is the pain part – not savings. Big difference.
The problem is that not forgoing current consumption, that disinvesting in your future is dangerous. So the trade off is:
- Not consuming right now = pain
- Disinvesting in your future = danger
What has also changed is that the future dangers are no longer abstract or hypothetical. Most are now actuarial certainties.
Disinvesting in Your Future is Dangerous
The pain of not consuming now everyone knows and avoids as much as possible. Our brains are super-adapted to going with our impulses of the moment and avoiding immediate pain. We are actually immediately guarded and suspicious when anything gets in the way of behaving that way and anyone who suggest otherwise.
Imagine even suggesting slowing down a bit in a line at Starbucks!! We have actually done that – instant hatred ensues. Really.
So our brains are super-adapted to immediate felt needs. Future dangers – not so much.
Remember, when our brains evolved our ancestors didn’t have any futures! There are also technical evolutionary theoretical reasons as well but we’ll skip those for when you buy us a drink sometime.
The dangers of disinvesting in one’s future are increasingly clear and serious — and increasing:
- Allowing chronic stress degrades all physical and brain systems and can lead to life-long disabilities.
- Overeating or under exercising can lead to cognitive declines and chronic illnesses.
- Lack of savings can lead to severely degraded lifestyles also with bad health implications.
Make no mistake. The dangers from disinvesting in ones (now greatly extended) future are mounting. Quite simply – we now have much more life to protect; a much longer life to accumulate dangers.
But these dangers are not the immediate and largely physical or environmental dangers of our ancestors. While our minds are hyper-adapted to dangers from snakes, spiders, starvation, other carnivores/tribes, etc – or current dangers are far larger, more pervasive, more systemic and more inexorable. Climate change, economic dislocations, chronic illnesses, family structure changes, loss of income, inability to pay medical costs, etc.
What can we do? That will come in our next blog post. Stay tuned.