moneyFYI
Financial Freedom Is Merely Organized Common Sense
Which Is Better? More Choices or Fewer?
People favour more choices because they think they can get a better future by having more options. That’s not how it plays out though. Beyond a point, there is no advantage to more.
An example
A friend paid off his mortgage early in the year, and he decided to save what would have been his mortgage payments and put them into an RRSP. The smart choice, right? Usually, it would be, but Eugene wanted to make the best possible decision about which RRSP. To that end, he collected 15 or so brochures from major banks and at least 20 more from credit unions, trust companies, insurance companies and even a self-directed plan.
According to his wife, he laid all the information out on a large pasted-together piece of paper about the size of their dining room table. Like a big spreadsheet without computer assistance.
By the time he entered the data in columns and rows, there were about 250 cells with information in them.
The outcome
by the end of the year, he had about $9,000 in a savings account and absolutely no way to decide which RRSP to choose. What would you do? Probably the same thing Eugene did. He and his wife spent 3 weeks in Hawaii with the money and decided against the RRSP.
More choices do not improve decisions.
We know about the problem.
In 2008 Richard Thaler and Cass Sunstein wrote a book, “Nudge.” It’s worth a look even fourteen years later. They outline the problems with too many choices. The principle problem, people tend to do nothing when overwhelmed by choices.
Seth Godin yesterday addressed the problem of what he calls “feature creep” Adding features is an opportunity to provide very cheaply added value. Easy to add to your cell phone apps or program options. The cost is not zero for he user, though. Overburdened systems and multiple choice apps like scanners on your cell phone. Seth notes that the end of this game is system collapse.
It’s short and worth a look. Feature Creep
He says it appears beyond software. Does your grandmother have trouble dealing with a TV/Cable remote control? I’ll bet she does. There are easily 60 buttons. How complex is the dash of your car?
More is less.
The bits to take away.
Organize your life to be as simple as possible, but no simpler. If you want to experiment with features, do so on a test basis. Don’t add them to your life indiscriminately.
Of the 35 RRSPs Eugene studied, there were not more than 4 distinct choices. RRSPs should be thought of as a container. The container doesn’t matter as much as what is in it. Equal plans should be treated as one, not 7 or 8.
I build strategic, fact-based estate and income plans. The plans identify alternate ways to achieve spending and estate distribution goals. In the past, I have been a planner with a large insurance, employee benefits, and investment agency, a partner in a large international public accounting firm, CEO of a software startup, a partner in an energy management system importer, and briefly in the restaurant business. I have appeared on more than 100 television shows on financial planning. I have presented to organizations as varied as the Canadian Bar Association, The Ontario Institute of Chartered Accountants, The Ontario Ministry of Agriculture and Food, and Banks – from CIBC to the Federal Business Development Bank.
Be in touch at 705-927-4770 or by email at don.shaughnessy@gmail.com.
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