Could financial education now yield big returns later?
If people were entirely rational beings, we would make entirely rational choices. Douglas Bernheim, however, knows we are not. The Edward Ames Edmonds Professor of Economics has long been intrigued by human behavior and used behavioral economics theories to analyze the messy business of people and their money. Not being entirely rational, we sometimes go down paths that aren’t the most beneficial to us. When it comes to saving for retirement, not all of us carefully calculate how much we’ll need in our later years and save accordingly. Economists have noticed that people generally consume much less when they retire, and Bernheim found they save only about one-third of what they need to maintain the same standard of living. Some economists argued that people plan for consumption to decline, knowing, for example, that their work-related expenses would decrease. Bernheim didn’t agree. He believed people were not fully comprehending the consequences of their actions, or inactions. Once the
