At first glance, there is no connection between the shooting of an unarmed black man in Ferguson, Missouri, and planning for retirement.
But dig a little deeper and you can hear some of the same criticisms about poor people who have too many run-ins with the police and people who fail to save enough money for retirement. The common link is that the victims are being blamed for their life situations and that should help explain their final outcomes.
In the case of people planning for retirement, a common argument is that they live profligate, extravagant lives, or lack the discipline to save. This explains why they cannot make a 15% or 20% contribution into their 401(k). That may be comforting to people looking for an explanation about why so many people do not maximize their employer matching rates, but it also puts all the blame on the errant employee.
At the other extreme, poor people who have deadly encounters with the police commonly get blamed for being unresponsive to police demands or being unruly. Their end result is then justified, according to some.
Sound like a dated and outmoded concept? Think again.
“When people start talking about ETFs and liquid alts and private equity and all of that stuff, I too chuckle a little bit,” Zimpleman said in a conference call in April in response to a question about including exchange-traded funds and other options in 401(k) plans. “It’s really hard to see how that is something that can be easily explained.”
“All of that stuff” is a broad category, but ETFs are easy to explain and they can be better products than the largely mediocre mutual funds offered by Principal. The colonial attitude here is that Zimpleman’s customers can’t understand “all of that stuff,” so there is no need to explain it. The better explanation is that Principal won’t offer ETFs since it collides with their profit model, so it’s easier to blame the simple customers.
But there may be another explanation about why some people blame others for their financial misfortunes or inability to save for retirement.
Recent behavioral research has found that people who are politically conservative are inclined to let people who have suffered financial misfortune suffer the consequences. This research, as cited in the book, The Impulse Society by Paul Roberts, may explain he colonial attitude towards those who cannot save for retirement, regardless of the economic facts showing the overall decline in the middle class over the past three decades.
How Retirement Became So Risky
In the retirement planning world, blaming the victims (people who cannot save “enough”) denies the economic facts that have developed over the past three decades. According to the Census Bureau, the constant dollar median income for all American families fell slightly from 2000 to 2009, and it only increased 11% in the entire 19-year period from 1990 to 2009.
At the wage level, the story is no better. Data from the Bureau of Labor Statistics showed that from 2001 to 2010, wages increased 75 cents an hour over the nine-year period. Worse, in constant dollar terms the median, full-time U.S. male worker earned less in 2010 than his father did in 1973 (1973- $49,065 versus $47,715 in 2010.) As noted in the excellent book, We Are Better Than This by Edward Kleinbard, the only reason American middle class incomes rose over the past 20 years is that women entered the workforce, so now families had two breadwinners, but this came at a cost to the American family.
Looking ahead, the picture does not seem brighter for workers who are still recovering from the 2007 recession. From that debacle, which will repeat itself since the banks now have taxpayer backing for their losses, the net worth of the median American family fell 39% from 2007 to 2010. Other data from the Federal Reserve’s Survey of Consumer Finances report, shows the median net worth of the American family was the same in 2010 as it was in 1992. That’s 18 years of lost gains in an economy which during the same period produced the largest income discrepancies in the developed world.
So how would a good financial planner hedge against this outcome?
Maybe they should suggest that their clients should save more. That would certainly be an interesting conversation.