Everything is going mobile which is usually viewed as a positive trend. But the easy and quick access that mobile devices allow users to make may be dangerous when it comes to financial decisions according to UCLA Professor Shlomo Benartzi.
Benartzi is credited with bringing behavioral financial principles like auto-enrollment and auto escalation to the DC industry along with University of Chicago Professor Richard Thaler, which has increased retirement savings by tens of billions of dollars. Though a student of digital technology and its many benefits, in a NY Times article Benartzi cautions that while smartphones might be useful to provide information and engender better behavior, they can also lead to rash decisions which could have negative long term repercussions.
A majority of people with a smartphone do banking online and some clever financial apps have been shown to cuts spending by 15.7%. But these apps also allow people to sell stocks during a market crisis, make a rash decision to borrow money or even cash out their 401k balance.
Benartzi points out the hazards of digital technology including fragmented attention caused by multitasking leading to less understanding and shortsighted decisions. For example, people get 20% more bacon toppings on their pizza when ordering online – they score much better on financial literacy test using pen and paper.
Quick to catch up with other industries like banking and credit cards, the retirement industry is moving headlong into mobile apps which could lead to shortsighted and harmful decisions like selling funds during a crisis or cashing out.
Though digital access to 401k accounts is here to stay, Benartzi raises two key questions that plan sponsors and their providers should consider: 1. what actions should people be allowed to take without perhaps speaking with a person; and 2. how should we design the new digital interface for defined contribution plans. Plan sponsors are becoming digital fiduciaries as Benartzi pointed out in a Harvard Business Review article last year and need to realize that the digital choices they make can have significant implications for their employees.
