Hanna, S. (1998). The
sky is falling and other persuasive techniques. Financial Counseling and
Planning, 9(2), ii.
‘The Sky is Falling’ and Other Persuasive Techniques
Half of the eight articles
in this issue are related to retirement. Retirement will continue to be
a prominent topic in research and in the media as the first baby boomer
approaches 55. In the last issue of this journal, Yuh, Montalto and Hanna
(1998) found that only 52% of households with workers aged 35 to 70 would
be able to maintain their level of living in retirement based on current
assets and contribution levels. Such findings lead some to try to persuade
workers to save more by dire warnings. I have doubts about this tactic,
but on the other hand, communication with the public is difficult. It is
hard enough to educate a captive audience of undergraduates. Simple messages
and rules of thumb are more likely to be remembered than complicated procedures.
If we tell workers that the sky is falling, perhaps they will sign up for
a 401(K) plan.
An example of the issue of
simple communications can be seen in the debate about how much spending
should be assumed to be needed in retirement (McNamee, 1999). We can observe
that the elderly spend less on most things than the non-elderly (e.g.,
Williams & Zhou, 1997). Does this mean that one should plan to spend
less in retirement? This is an unresolved question. Clearly, many people
will have different phases of retirement (Stein, 1998). Stein’s excellent
book also quotes Henry David Thoreau: “The man is the richest whose pleasures
are the cheapest.” It is clear, however, that many Americans do not want
to suddenly become thrifty in retirement. Financial educators and planners
need to help each individual plan for a retirement that fits his or her
Another example of simplistic
discussion is the public policy debate over the U.S. Social Security system.
Although it is true that given conservative projections about economic
growth and demographic trends, the system cannot keep the present benefit
structure, I am 99% confident that pensions will be paid throughout 21st
century. The source of my confidence is simple economics – as long as we
have historic levels of economic growth, real benefit levels can be maintained.
All Congress needs to do
is to make minor adjustments in future replacement rates, and the system
will be viable. However, in order to stimulate political action, people
on all sides of the political debate prefer to focus on the projected bankruptcy
of the system in a few decades. The media happily lead the alarmist talk,
because it sells papers and attracts viewers. I put a little poll on several
web sites I maintain: “In the year 2030, will Social Security pay pensions
at least as high in purchasing power as today?” Of 100 responses, only
20% agreed with the statement. Yet there is no question in my mind that
the average pension paid in the year 2030 will have higher purchasing power
than the average pension paid today. It is also likely that the replacement
rate will be lower than today, but that need not be a disaster for those
who plan. Hopefully, research published in this journal will help correct
the confusion created by the media on such issues.
This issue provides a diversity
of research from a diverse set of authors. In an innovate article, Christiansen
and DeVaney discuss what leads clients to trust a financial planner. Thompson,
Sharpe and Hamilton use qualitative research with a small group of women
to study what personal characteristics they would prefer in a financial
educator. Aldana and Liljenquist add to the research on measuring financial
strain. Parrotta and Johnson add to the research on the systems approach
linking attitudes to financial management. Hooks provides valuable results
about mutual funds – except for index funds, labels do not necessarily
tell you what you are getting in a fund. Sung and Hanna’s results suggest
the importance of education directed at household rather than individual
worker retirement decisions. Hatcher provides some support for some degree
of rational planning for retirement, but gives daunting research agenda
for the next century. Hira and Mugenda report that retirees are more satisfied
than non-retirees. We are left with the question of whether people planned
well, or adjust.
McNamee, M. (1999, March
22). Commentary: Saving for retirement: don’t believe the happy talk. Business
Stein, M. K. (1998). The
prosperous retirement: Guide to the new reality. Boulder, CO: EMSTCO Press.
Williams, F. L. & Zhou,
H. (1997). Income and expenditures in two phases of retirement. Financial
Counseling and Planning, 8(2), 75-82.
Yuh, Y., Montalto, C. P.
& Hanna, S. (1998). Are Americans prepared for retirement? Financial
Counseling and Planning, 9(1), 1-12.
1. Sherman Hanna, Professor, Consumer and Textile
Sciences Department, The Ohio State University, 1787 Neil Ave., Columbus,
OH 43210-1295. Phone: (614) 292-4584. Fax: (614) 292-7536. E-mail: email@example.com