The median US worker retires with just $25,000 set aside for the rest of their lives. Harvard economist David Laibson argues our financial system favors the sophisticated, leaving the "Invisible Worker" in distress. He makes the case for forced savings and behavioral design solutions like automatic enrollment to overcome human procrastination and ensure financial security.

Show notes from our host, Emily Trant:

I first encountered David Laibson’s work years ago, long before I had the chance to meet him. His research on behavioral economics and automatic enrollment didn’t just sit in academic journals; it quite literally changed millions of people's retirement trajectories.

When I finally sat down with him at his beautiful home, the Lowell House at Harvard, I expected a lecture from one of the world’s most brilliant economists. What I got instead was a deeply empathetic conversation about the "gnawing feeling" of financial distress. David is the first to admit that even he isn't always "economically rational," and his humility in discussing the "triple whammy ice cream dessert" of life’s temptations is exactly why his work is so impactful.

David, thank you for your decades of work, for welcoming us into your home, and for helping us understand how to build systems that actually catch people before they fall.

Here is more information on the research and topics we discussed:

• Influencing Retirement Savings Decisions: David’s work with Brigitte Madrian, James Choi, and John Beshears transformed how we think about "active choice."
• Read here: https://www.nber.org/reporter/2024number3/influencing-retirement-savings-decisions-automatic-enrollment-and-related-tools?page=1&perPage=50
• The UK Pensions Commission: Learn how the UK used David’s research to move private sector pension participation from 30% to over 80%.
• Read here: https://www.pensionspolicyinstitute.org.uk/
• Borrowing to Save?: A fascinating look at the impact of automatic enrollment on household debt.
• Read here: https://laibson.scholars.harvard.edu/sites/g/files/omnuum5971/files/laibson/files/borrowing_to_save_20200812.pdf
• The Semblance of Success: On the difficulty of nudging consumers to pay down credit card debt.
• Read here: https://www.nber.org/papers/w31926

We also touched on some startling realities facing the "Invisible Worker" today:

• The 401(k) "Leakage" Crisis: Research shows the median US worker reaches retirement with only $25,000 across all accounts, largely due to withdrawals during employer transitions.
• The "0.5%" Rule: A look into why only a tiny fraction of the population acts with pure economic rationality, while the other 99.5% of us are driven by emotion and impulse.

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