1 00:00:00,040 --> 00:00:02,640 Speaker 1: Welcome to How to Money. I'm Joel, and today I'm 2 00:00:02,640 --> 00:00:25,159 Speaker 1: discussing why money decisions feel rigged with John Campbell. So 3 00:00:25,280 --> 00:00:27,840 Speaker 1: this show exists to help you make smart decisions with 4 00:00:27,880 --> 00:00:29,880 Speaker 1: your money. But if we're being honest, how to Money 5 00:00:30,080 --> 00:00:33,640 Speaker 1: might not be as necessary if the financial system weren't 6 00:00:33,680 --> 00:00:36,000 Speaker 1: so confusing in the first place. For a lot of 7 00:00:36,000 --> 00:00:39,400 Speaker 1: people navigating modern money realities, it feels like swimming in 8 00:00:39,520 --> 00:00:43,159 Speaker 1: shark infested waters, high stakes, unclear rules, and the potential 9 00:00:43,159 --> 00:00:45,919 Speaker 1: for costly mistakes at every turn, even if you're unlikely 10 00:00:46,000 --> 00:00:48,960 Speaker 1: to lose a limb in the personal finance space. But 11 00:00:49,320 --> 00:00:52,000 Speaker 1: my guest today is Professor John Campbell. He's author of 12 00:00:52,040 --> 00:00:55,680 Speaker 1: the book Fixed. He's an economics professor at Harvard. He 13 00:00:55,800 --> 00:00:58,960 Speaker 1: believes that the financial system has a responsibility to serve 14 00:00:59,080 --> 00:01:02,200 Speaker 1: ordinary people with products they can understand, they can afford, 15 00:01:02,320 --> 00:01:05,040 Speaker 1: and safely use. So today we're talking about what's broken 16 00:01:05,080 --> 00:01:08,039 Speaker 1: in personal finance and what real solutions could look like. 17 00:01:08,120 --> 00:01:10,240 Speaker 1: Professor John Campbell, Welcome to the show. 18 00:01:10,720 --> 00:01:12,920 Speaker 2: Thank you very much for having me. Joel, pleasure to 19 00:01:12,959 --> 00:01:13,320 Speaker 2: be here. 20 00:01:13,640 --> 00:01:16,840 Speaker 1: First question I ask everybody who comes on, is what 21 00:01:16,840 --> 00:01:19,480 Speaker 1: do you like to splurgeh on professor is you know, 22 00:01:19,520 --> 00:01:22,320 Speaker 1: we spent splurge on craft beer over here. But hey, 23 00:01:22,319 --> 00:01:24,240 Speaker 1: it's okay because we're doing the smart stuff. We're saving 24 00:01:24,280 --> 00:01:26,440 Speaker 1: and investing for our future. What's that for you? 25 00:01:27,040 --> 00:01:29,480 Speaker 2: Well, you know, in the last couple of years, I've 26 00:01:29,480 --> 00:01:33,920 Speaker 2: been spending money trying to furnish a house that my 27 00:01:34,000 --> 00:01:36,720 Speaker 2: wife and I built on the coast of Maine. So 28 00:01:36,880 --> 00:01:40,040 Speaker 2: we love the coast of Maine, the rocks, the tides. 29 00:01:41,360 --> 00:01:45,080 Speaker 2: It turns out getting a house that's only the first step. 30 00:01:45,120 --> 00:01:47,119 Speaker 2: Then you have to put things in the house. So 31 00:01:47,880 --> 00:01:52,320 Speaker 2: we've been gradually doing that, but meanwhile enjoying looking out 32 00:01:52,360 --> 00:01:55,639 Speaker 2: at the birds, the seals, and so forth. 33 00:01:55,920 --> 00:01:57,600 Speaker 1: Just sitting on the floor until you get the proper 34 00:01:57,640 --> 00:02:01,320 Speaker 1: chairs in place, though, right exactly, Hey, that sounds okay. 35 00:02:01,320 --> 00:02:02,960 Speaker 1: I think I'd be willing to sit on the floor 36 00:02:03,040 --> 00:02:05,400 Speaker 1: on a house on the coast of Maine. That sounds lovely. 37 00:02:06,400 --> 00:02:09,160 Speaker 1: All right, let's transition. Let's talk about your book, and 38 00:02:09,360 --> 00:02:13,480 Speaker 1: I just I really appreciate your perspective because so often 39 00:02:14,160 --> 00:02:17,520 Speaker 1: on this podcast we are talking to individuals about how 40 00:02:17,560 --> 00:02:23,000 Speaker 1: to improve their personal financial situation, and so often we 41 00:02:23,080 --> 00:02:27,000 Speaker 1: are talking about jumping over hurdles or just the awkward reality, 42 00:02:27,120 --> 00:02:30,840 Speaker 1: let's say, of the credit scoring system and how you 43 00:02:30,880 --> 00:02:33,919 Speaker 1: have to play the game in order to but there's 44 00:02:33,919 --> 00:02:37,200 Speaker 1: a lot of explanation required. How in your estimation, how 45 00:02:37,200 --> 00:02:40,040 Speaker 1: badly is the personal finance system in America broken? 46 00:02:40,360 --> 00:02:46,160 Speaker 2: Well? Joel my co author and I let me mention 47 00:02:46,320 --> 00:02:49,880 Speaker 2: my co author of the book, to run RAMATTERI who 48 00:02:50,000 --> 00:02:54,640 Speaker 2: teaches in London at the London School of Economics. He 49 00:02:54,760 --> 00:02:58,040 Speaker 2: and I have the view that the system is fixed 50 00:02:58,120 --> 00:03:01,000 Speaker 2: but should be fixed. So you know, of a rather 51 00:03:01,120 --> 00:03:04,880 Speaker 2: weak pun there. We think it's fixed against ordinary people, 52 00:03:04,960 --> 00:03:12,280 Speaker 2: rigged if you like. It's systematically disadvantages people with you know, 53 00:03:12,440 --> 00:03:19,160 Speaker 2: less financial education, less sophistication, very typically less money, and 54 00:03:19,960 --> 00:03:22,360 Speaker 2: we think that's not okay, and the system needs to 55 00:03:22,400 --> 00:03:25,680 Speaker 2: be reformed or fixed in the other sense that you 56 00:03:25,720 --> 00:03:31,160 Speaker 2: can fix a broken machine and make it work better. So, 57 00:03:32,200 --> 00:03:37,320 Speaker 2: you know, to summarize the problem in a couple of sentences, 58 00:03:38,920 --> 00:03:42,840 Speaker 2: we think the complexity of finance induces people to make mistakes. 59 00:03:43,160 --> 00:03:46,680 Speaker 2: Those that's the shark infested waters you were talking about earlier. 60 00:03:46,840 --> 00:03:51,600 Speaker 2: It's so easy to make mistakes, and human nature is 61 00:03:51,640 --> 00:03:55,040 Speaker 2: not very well suited to financial decision making. You know, 62 00:03:55,120 --> 00:03:57,960 Speaker 2: our brains don't really work the right way. We have 63 00:03:58,000 --> 00:04:00,960 Speaker 2: to train ourselves to make good financial decisions, so it's 64 00:04:01,000 --> 00:04:05,280 Speaker 2: all too easy to make mistakes. But then the existence 65 00:04:05,280 --> 00:04:10,400 Speaker 2: of mistakes, we argue that actually corrupts capitalism. It corrupts 66 00:04:10,480 --> 00:04:15,160 Speaker 2: the energy of the financial sector into meeting the needs 67 00:04:15,200 --> 00:04:18,960 Speaker 2: that people express and maybe exploiting the mistakes as opposed 68 00:04:19,000 --> 00:04:23,359 Speaker 2: to correcting the mistakes. It turns out that it's often 69 00:04:23,360 --> 00:04:26,760 Speaker 2: in the interests of financial suppliers to make products more 70 00:04:26,800 --> 00:04:30,000 Speaker 2: complicated than they need, to be, more complex, harder to 71 00:04:30,080 --> 00:04:33,839 Speaker 2: shop for, and so you get a race between mistakes 72 00:04:33,839 --> 00:04:38,400 Speaker 2: and complexity. The mistakes bring forth complexity, and the complexity 73 00:04:38,960 --> 00:04:41,800 Speaker 2: brings fourth mistakes, and around and round we go in 74 00:04:41,920 --> 00:04:43,640 Speaker 2: a vicious circle. 75 00:04:45,040 --> 00:04:50,520 Speaker 1: Some people might question you and say, well, wait a second, John, 76 00:04:50,560 --> 00:04:54,960 Speaker 1: People are responsible for their own decisions, right, And you're 77 00:04:55,000 --> 00:04:58,000 Speaker 1: maybe saying that the system's broke in, But maybe people 78 00:04:58,040 --> 00:05:02,160 Speaker 1: should adapt to the system, and they should just they 79 00:05:02,520 --> 00:05:06,760 Speaker 1: should get their education in personal finance that doesn't really exist, 80 00:05:06,839 --> 00:05:09,279 Speaker 1: but that they're going to have to hodgepodge on their own, 81 00:05:09,640 --> 00:05:12,480 Speaker 1: and that's the real solution. What would you say to 82 00:05:12,520 --> 00:05:14,560 Speaker 1: somebody who said, who'd make that argument? 83 00:05:15,000 --> 00:05:18,120 Speaker 2: Well, I would say that financial education is very important. 84 00:05:18,160 --> 00:05:20,760 Speaker 2: I'm very committed to it personally. I believe in it. 85 00:05:20,800 --> 00:05:23,080 Speaker 2: I think the kind of work that you're doing on 86 00:05:23,120 --> 00:05:27,440 Speaker 2: your podcast is excellent work. I'm on the board of 87 00:05:27,480 --> 00:05:30,880 Speaker 2: a nonprofit called the Council for Economic Education, which which 88 00:05:30,960 --> 00:05:36,479 Speaker 2: promotes both economics and financial literacy education in high schools 89 00:05:36,600 --> 00:05:40,320 Speaker 2: across the country. I teach a personal finance course at 90 00:05:40,320 --> 00:05:43,760 Speaker 2: Harvard that had over three hundred students last fall. So, 91 00:05:44,000 --> 00:05:46,560 Speaker 2: you know, I really believe in financial education. At the 92 00:05:46,600 --> 00:05:51,520 Speaker 2: same time, it's a little bit David versus Goliath. You know, 93 00:05:51,920 --> 00:05:56,560 Speaker 2: the ordinary person is trying to get an education amid 94 00:05:56,680 --> 00:06:01,719 Speaker 2: many other challenges in life, and yet the financial industry is, 95 00:06:02,839 --> 00:06:08,640 Speaker 2: you know, well resourced and designing products, some of which 96 00:06:08,720 --> 00:06:11,039 Speaker 2: do meet the needs of people. I mean, I don't 97 00:06:11,080 --> 00:06:17,560 Speaker 2: want to demonize the financial industry, but some of these 98 00:06:17,560 --> 00:06:21,560 Speaker 2: products actually do exploit mistakes in a way that I 99 00:06:21,560 --> 00:06:25,599 Speaker 2: think it's it's just unrealistic to expect financial education to 100 00:06:25,640 --> 00:06:28,000 Speaker 2: be the whole solution. It's part of the solution, but 101 00:06:28,080 --> 00:06:29,520 Speaker 2: it's not enough by itself. 102 00:06:30,040 --> 00:06:32,760 Speaker 1: You talk about how the system subsidizes some people while 103 00:06:32,800 --> 00:06:36,520 Speaker 1: hurting others, and that like is evidently clear in something 104 00:06:36,640 --> 00:06:39,719 Speaker 1: like credit cards, right where forty six percent of people 105 00:06:39,920 --> 00:06:43,440 Speaker 1: have a recurring balance, they're paying exorbitant interest rates to 106 00:06:43,480 --> 00:06:46,560 Speaker 1: the credit card companies every month. And then people like 107 00:06:47,680 --> 00:06:50,760 Speaker 1: who are on the travel blogs and stuff like that, 108 00:06:50,760 --> 00:06:54,360 Speaker 1: they're optimizing getting thousands of dollars worth of free travel 109 00:06:54,400 --> 00:06:56,640 Speaker 1: every year, not paying a diamond interest to the credit 110 00:06:56,640 --> 00:07:00,200 Speaker 1: card companies. So I think that's that's easy to highlight 111 00:07:00,240 --> 00:07:03,000 Speaker 1: in the case like that. Would you say that when 112 00:07:03,040 --> 00:07:05,680 Speaker 1: you're breaking down who is most harmed by that financial system? 113 00:07:05,839 --> 00:07:08,679 Speaker 1: Are you? Is it the poor who are most hurt 114 00:07:08,800 --> 00:07:11,320 Speaker 1: compared to the rich, or is it the people who 115 00:07:11,400 --> 00:07:13,800 Speaker 1: are least savvy compared to the people who are who 116 00:07:13,840 --> 00:07:14,560 Speaker 1: are most savvy. 117 00:07:14,920 --> 00:07:19,760 Speaker 2: There's an element of both. Some of the disadvantage of 118 00:07:20,920 --> 00:07:24,960 Speaker 2: poorer people is inevitable because there are fixed costs of 119 00:07:25,040 --> 00:07:28,760 Speaker 2: providing financial services. So you know, originating a small loan 120 00:07:29,600 --> 00:07:32,480 Speaker 2: that's expensive, So that's going to make a small loan expensive. 121 00:07:32,520 --> 00:07:35,400 Speaker 2: And one reason why credit card rates are high is 122 00:07:35,440 --> 00:07:40,560 Speaker 2: that you know, these are small dollar loans. So some 123 00:07:40,640 --> 00:07:45,120 Speaker 2: of that is inevitable, but unfortunately it's worsened by the 124 00:07:45,840 --> 00:07:49,520 Speaker 2: transfer from the less savvy to the more savvy and 125 00:07:50,360 --> 00:07:55,200 Speaker 2: savness unfortunately correlates with wealth. So you know, richer people 126 00:07:55,280 --> 00:07:58,520 Speaker 2: tend to have the benefit of more financial education, more 127 00:07:58,560 --> 00:08:02,960 Speaker 2: sophisticated networks of people. Maybe they can afford financial advisors, 128 00:08:03,080 --> 00:08:06,560 Speaker 2: or maybe they're just brought up in families where they're trained, 129 00:08:07,320 --> 00:08:10,120 Speaker 2: you know, how to think about finance when many ordinary 130 00:08:10,160 --> 00:08:14,680 Speaker 2: people are not. Now, you know, you mentioned credit card 131 00:08:14,760 --> 00:08:19,280 Speaker 2: rates as an example of the transfer. I think I 132 00:08:19,280 --> 00:08:23,400 Speaker 2: would highlight the kind of hidden costs that people don't 133 00:08:23,400 --> 00:08:27,000 Speaker 2: anticipate paying but end up paying. So let me give 134 00:08:27,000 --> 00:08:32,640 Speaker 2: another example. Overdraft fees on checking accounts. All right, banks 135 00:08:32,679 --> 00:08:37,040 Speaker 2: market overdraft protection. What does that mean? If you inadvertently 136 00:08:37,880 --> 00:08:40,120 Speaker 2: spend too much with a debit card or write a 137 00:08:40,200 --> 00:08:43,280 Speaker 2: check that overdraws your account, the bank will honor it, 138 00:08:43,320 --> 00:08:45,600 Speaker 2: but they will charge a very high fixed fee for 139 00:08:45,640 --> 00:08:49,680 Speaker 2: that service, which corresponds, in fact, to an extraordinarily high APR, 140 00:08:49,760 --> 00:08:54,240 Speaker 2: a kind of payday lending level ap SURE. And people 141 00:08:54,280 --> 00:08:57,280 Speaker 2: who aren't watching what they're doing can easily run up 142 00:08:57,280 --> 00:09:01,280 Speaker 2: several of these charges in a single day, and that 143 00:09:01,320 --> 00:09:05,000 Speaker 2: creates revenue for the banks. Now, the banks don't keep 144 00:09:05,000 --> 00:09:08,000 Speaker 2: all that revenue. It is banking is a very competitive industry. 145 00:09:08,760 --> 00:09:11,160 Speaker 2: But what they do is they offer free checking accounts, 146 00:09:11,800 --> 00:09:14,440 Speaker 2: so someone like me, you know, I don't overdraft my account. 147 00:09:14,600 --> 00:09:17,680 Speaker 2: I get free checking on the backs of the fees 148 00:09:17,920 --> 00:09:25,199 Speaker 2: paid by people who overdraft. Similarly, think about fixed rate mortgages, 149 00:09:25,240 --> 00:09:28,640 Speaker 2: the standard, plain vanilla fixed rate mortgage that we all 150 00:09:28,679 --> 00:09:31,640 Speaker 2: know and love in this country that needs to be 151 00:09:31,679 --> 00:09:35,960 Speaker 2: refinanced when interest rates full. It turns out that people 152 00:09:36,000 --> 00:09:39,160 Speaker 2: who know how to do that promptly and advantageously tend 153 00:09:39,160 --> 00:09:44,480 Speaker 2: to be better educated, richer. They tend more often to 154 00:09:44,559 --> 00:09:46,960 Speaker 2: be white and less often to be black and Hispanic, 155 00:09:47,720 --> 00:09:52,359 Speaker 2: and so there are borrowers who don't know to refinance, 156 00:09:52,559 --> 00:09:54,920 Speaker 2: don't do it, and end up paying higher rates than 157 00:09:54,960 --> 00:09:58,760 Speaker 2: they need to. Now, again, that revenue comes into the 158 00:09:58,760 --> 00:10:02,800 Speaker 2: mortgage lending industry, but the industry is competitive, so so 159 00:10:02,960 --> 00:10:06,720 Speaker 2: part of the money is passed on to all borrowers 160 00:10:06,720 --> 00:10:09,840 Speaker 2: in the form of lower mortgage rates. So you know, 161 00:10:09,920 --> 00:10:14,160 Speaker 2: I have a cheaper mortgage because other people who probably 162 00:10:14,240 --> 00:10:18,559 Speaker 2: have less money than I do are not refinancing. There's 163 00:10:18,600 --> 00:10:24,680 Speaker 2: a hidden transfer there. Once you see this in financial products, 164 00:10:24,720 --> 00:10:28,200 Speaker 2: you see it everywhere. It's pervasive across the personal finance 165 00:10:28,320 --> 00:10:31,240 Speaker 2: landscape and that's one of the big themes of the book. 166 00:10:31,440 --> 00:10:33,320 Speaker 1: So there's I think there's a lot of negatives to 167 00:10:33,360 --> 00:10:36,040 Speaker 1: cover today. But before we go too far down that path. 168 00:10:36,400 --> 00:10:39,719 Speaker 1: Being the eternal optimist that I am, where do you 169 00:10:39,760 --> 00:10:43,240 Speaker 1: see things working well in the US personal finance system? 170 00:10:43,440 --> 00:10:47,520 Speaker 1: Because you're right like there are even when you're talking 171 00:10:47,559 --> 00:10:49,240 Speaker 1: about banks there, I was just thinking, well, some of 172 00:10:49,280 --> 00:10:52,719 Speaker 1: our favorite online banks that are pretty large, they've completely 173 00:10:52,760 --> 00:10:55,360 Speaker 1: eliminated overdraft fees. And so if you just go with 174 00:10:55,400 --> 00:10:58,160 Speaker 1: the right bank versus one of the biggest banks that 175 00:10:58,200 --> 00:11:02,680 Speaker 1: has you know, brick and mortar on every corner, then 176 00:11:03,240 --> 00:11:06,680 Speaker 1: you're eliminating that at least frustration from your life. But 177 00:11:06,720 --> 00:11:09,560 Speaker 1: where where would you say things are working well well? 178 00:11:09,679 --> 00:11:12,120 Speaker 2: First of all, I agree completely with you that there 179 00:11:12,160 --> 00:11:16,440 Speaker 2: are many good financial products available and good services, and 180 00:11:16,559 --> 00:11:19,720 Speaker 2: part of that is being driven by technology. You know, 181 00:11:19,760 --> 00:11:21,760 Speaker 2: a theme of the book is technology is a double 182 00:11:21,840 --> 00:11:24,360 Speaker 2: edged sword. It has its dangers, but it also has 183 00:11:24,920 --> 00:11:28,280 Speaker 2: tremendous promise at lowering those fixed costs that I mentioned 184 00:11:28,320 --> 00:11:32,079 Speaker 2: earlier and making you know, cheaper small scale credit available. 185 00:11:33,280 --> 00:11:36,520 Speaker 2: Just think of the rise of you know, online banks, 186 00:11:36,559 --> 00:11:41,920 Speaker 2: but also online mortgage lenders. You know, robo advisors a 187 00:11:42,080 --> 00:11:47,120 Speaker 2: very affordable financial advice. So I think all of that 188 00:11:47,280 --> 00:11:51,680 Speaker 2: is good. I think there's been you know, very considerable 189 00:11:51,720 --> 00:11:56,240 Speaker 2: progress on the investing front, you know, the rise of 190 00:11:56,320 --> 00:11:59,600 Speaker 2: index funds, the rise of passive investing actually is something 191 00:11:59,679 --> 00:12:03,760 Speaker 2: that financial economists have been pushing for for decades and 192 00:12:04,800 --> 00:12:09,640 Speaker 2: really is happening. I think target date funds are a 193 00:12:09,760 --> 00:12:13,079 Speaker 2: very good innovation because they adjust risk over the life 194 00:12:13,080 --> 00:12:16,840 Speaker 2: cycle in a very sensible way. And actually, I think 195 00:12:17,280 --> 00:12:20,839 Speaker 2: our retirement saving system is working pretty well for people 196 00:12:20,840 --> 00:12:25,920 Speaker 2: who work for large companies. The problem really is access 197 00:12:25,960 --> 00:12:28,600 Speaker 2: and expanding the system so that it really works for 198 00:12:28,960 --> 00:12:32,080 Speaker 2: self employed people or people who work for small businesses 199 00:12:32,200 --> 00:12:35,800 Speaker 2: or who change jobs frequently. We've got some suggestions in 200 00:12:35,840 --> 00:12:38,560 Speaker 2: the book about that. But for many people who work 201 00:12:38,600 --> 00:12:43,520 Speaker 2: for large organizations, you know, retirement saving, particularly with auto enrollment, 202 00:12:44,200 --> 00:12:47,920 Speaker 2: where a target date fund as a default investment, you know, 203 00:12:48,000 --> 00:12:49,800 Speaker 2: it's working pretty well well. 204 00:12:49,840 --> 00:12:51,920 Speaker 1: There was just a recent announcement in the State of 205 00:12:52,040 --> 00:12:55,080 Speaker 1: the Union about potential matching dollars for people who don't 206 00:12:55,080 --> 00:12:57,000 Speaker 1: have a four to one k right through work. Because 207 00:12:57,000 --> 00:13:00,320 Speaker 1: you're right, so often and we're seeing actually, even because 208 00:13:00,360 --> 00:13:03,440 Speaker 1: of technology, more small businesses offering four to one case 209 00:13:03,480 --> 00:13:06,240 Speaker 1: because they cost so much less to offer their employees, 210 00:13:06,280 --> 00:13:08,200 Speaker 1: they can be more competitive with some of the big guys. 211 00:13:08,600 --> 00:13:10,760 Speaker 1: But there are still a lot of people left behind 212 00:13:10,800 --> 00:13:13,679 Speaker 1: in that system. Do you think matching government dollars is 213 00:13:13,920 --> 00:13:16,199 Speaker 1: at least part of that solution to incentivize people who 214 00:13:16,240 --> 00:13:18,480 Speaker 1: don't have a plan of their own through their employer. 215 00:13:19,080 --> 00:13:24,920 Speaker 2: Yes, I think I think matches are a good idea. 216 00:13:25,679 --> 00:13:28,640 Speaker 2: And you know, people who are offered a match through 217 00:13:28,679 --> 00:13:30,960 Speaker 2: their employee want one of the no brainer things. And 218 00:13:31,000 --> 00:13:34,160 Speaker 2: I'm sure you say this to your listeners, is you know, 219 00:13:34,240 --> 00:13:38,760 Speaker 2: take advantage of the match. Yeah, so we're sympathetic to matching. 220 00:13:40,280 --> 00:13:44,880 Speaker 2: Now it can become very expensive. One suggestion we throw 221 00:13:44,920 --> 00:13:48,520 Speaker 2: out in the book is to help people when they 222 00:13:49,280 --> 00:13:52,240 Speaker 2: enter adulthood, when they take their first job, or even 223 00:13:52,240 --> 00:13:56,760 Speaker 2: when they turn eighteen, to open an account and have 224 00:13:56,840 --> 00:14:00,199 Speaker 2: some dollars deposited there. You know, one might call that 225 00:14:00,400 --> 00:14:04,880 Speaker 2: universal basic wealth instead of universal basic income. Yeah. And 226 00:14:04,960 --> 00:14:06,679 Speaker 2: the nice thing about it is, first of all, it's 227 00:14:06,760 --> 00:14:09,400 Speaker 2: much cheaper than universal basic income because you only do 228 00:14:09,440 --> 00:14:12,760 Speaker 2: it once. But also it introduces people to the idea 229 00:14:12,880 --> 00:14:15,160 Speaker 2: that hey, you have savings, you have and you have 230 00:14:15,200 --> 00:14:18,720 Speaker 2: a vehicle for savings, and that can perhaps set people 231 00:14:18,760 --> 00:14:22,480 Speaker 2: on the road to a more secure financial future. Yeah. 232 00:14:22,520 --> 00:14:22,720 Speaker 2: I mean. 233 00:14:22,800 --> 00:14:25,760 Speaker 1: Just another product that kind of sort of maybe hits 234 00:14:25,800 --> 00:14:29,160 Speaker 1: a little bit of that is the Trump accounts for babies, 235 00:14:29,720 --> 00:14:32,400 Speaker 1: But those have a lot of shortcomings too that we've 236 00:14:32,400 --> 00:14:34,640 Speaker 1: talked about on the show. But my hope is that 237 00:14:34,760 --> 00:14:38,600 Speaker 1: at least for those that they get people interested in 238 00:14:38,680 --> 00:14:40,680 Speaker 1: some of the just like, oh wait, there's free money, 239 00:14:40,920 --> 00:14:42,200 Speaker 1: what am I supposed to do with that? And it 240 00:14:42,200 --> 00:14:46,480 Speaker 1: at least piques people's interest into diving into details and 241 00:14:46,520 --> 00:14:49,800 Speaker 1: then thinking about growing wealth in other accounts in other 242 00:14:49,880 --> 00:14:54,880 Speaker 1: parts of their lives. What is the average person? Why 243 00:14:55,000 --> 00:14:57,400 Speaker 1: would you say the average person has does have a 244 00:14:57,440 --> 00:15:01,080 Speaker 1: hard time understanding the trade offs in person well financed decisions. 245 00:15:01,080 --> 00:15:05,000 Speaker 1: Some it seems pretty simple, right, like this bank versus 246 00:15:05,000 --> 00:15:06,960 Speaker 1: that bank. This is the interest rate I'm getting and 247 00:15:07,080 --> 00:15:09,720 Speaker 1: this other bank offers very little and they have fees. Right, 248 00:15:09,760 --> 00:15:12,840 Speaker 1: But then there are a lot of other personal finance 249 00:15:12,840 --> 00:15:15,920 Speaker 1: decisions that we make and it's maybe harder for us 250 00:15:15,960 --> 00:15:17,480 Speaker 1: to decipher the details. 251 00:15:17,960 --> 00:15:21,200 Speaker 2: Some of the problems result from the fact that most 252 00:15:21,200 --> 00:15:25,000 Speaker 2: people hate to shop around for personal finance products. Now, 253 00:15:25,360 --> 00:15:27,920 Speaker 2: you know, you're in the business of talking to people 254 00:15:27,960 --> 00:15:31,600 Speaker 2: and telling them how advantageous it is to shop around 255 00:15:31,680 --> 00:15:34,800 Speaker 2: and look for a good deal, and you educate people 256 00:15:34,800 --> 00:15:38,440 Speaker 2: in how to do that. But you know, many people 257 00:15:38,480 --> 00:15:41,000 Speaker 2: in this country love to go shopping for you know, 258 00:15:41,200 --> 00:15:45,360 Speaker 2: clothes or I started talking about, you know, furniture from 259 00:15:45,360 --> 00:15:48,440 Speaker 2: my house in Maine. That's fun shopping. But very few 260 00:15:48,480 --> 00:15:53,960 Speaker 2: people find shopping for personal finance products fun. And they 261 00:15:54,200 --> 00:15:57,760 Speaker 2: there's evidence across many domains that people don't do it enough. 262 00:15:58,320 --> 00:16:00,760 Speaker 2: You know, far too many people take the first mortgage 263 00:16:00,800 --> 00:16:04,040 Speaker 2: quote they're offered when they could save you know, really 264 00:16:04,120 --> 00:16:10,000 Speaker 2: significant amounts of money, hundreds of dollars a year, simply 265 00:16:10,000 --> 00:16:14,560 Speaker 2: by getting one or two more quotes. So that reluctance 266 00:16:14,600 --> 00:16:20,200 Speaker 2: to shop gives financial firms some market power. They often 267 00:16:20,320 --> 00:16:26,480 Speaker 2: compete on branding rather than on price and quality. You know, 268 00:16:26,560 --> 00:16:28,920 Speaker 2: I live in a suburb of Boston and Lexington, which, 269 00:16:29,040 --> 00:16:32,200 Speaker 2: like many smaller towns in this country, the main street 270 00:16:32,280 --> 00:16:35,000 Speaker 2: is just lined with bank branches. And most of these 271 00:16:35,000 --> 00:16:40,000 Speaker 2: branches are not business centers in any meaningful sense. They're billboards, 272 00:16:40,640 --> 00:16:43,440 Speaker 2: they have an ATM, they have a big logo on 273 00:16:43,480 --> 00:16:47,320 Speaker 2: the window and it's just a form of branding. It 274 00:16:47,440 --> 00:16:50,760 Speaker 2: raises the costs of the banks. You mentioned how brick 275 00:16:50,800 --> 00:16:55,640 Speaker 2: and mortar banks have these high costs, But this is 276 00:16:55,680 --> 00:17:00,280 Speaker 2: an example of a form of competition that arises because 277 00:17:00,320 --> 00:17:02,280 Speaker 2: people are not looking for the best price in the 278 00:17:02,320 --> 00:17:04,800 Speaker 2: best quality. They're not shopping on that basis. They're just 279 00:17:04,840 --> 00:17:08,600 Speaker 2: going with whatever they see as they walk down main street. 280 00:17:09,080 --> 00:17:10,960 Speaker 1: One of the things you highlight too, you talk about 281 00:17:11,359 --> 00:17:14,399 Speaker 1: how many banks and savings products there are. But the 282 00:17:14,480 --> 00:17:17,920 Speaker 1: competition to a certain extent is typically helpful right in 283 00:17:17,960 --> 00:17:21,760 Speaker 1: a free market economy, but that we have maybe too 284 00:17:21,800 --> 00:17:24,840 Speaker 1: many options that doesn't brew down to the benefit of 285 00:17:24,840 --> 00:17:25,320 Speaker 1: the consumer. 286 00:17:25,720 --> 00:17:29,240 Speaker 2: The distinction is between the good form of competition is 287 00:17:29,280 --> 00:17:32,560 Speaker 2: on price and quality, and that's what we want to unleash. 288 00:17:33,240 --> 00:17:35,919 Speaker 2: My co author and I are believers in capitalism in 289 00:17:35,960 --> 00:17:39,840 Speaker 2: the market economy. We want to make competition work to 290 00:17:39,920 --> 00:17:43,879 Speaker 2: lower price and increase quality. The difficulty is that in 291 00:17:43,880 --> 00:17:50,080 Speaker 2: an environment where people are confused and buying on brand familiarity, 292 00:17:50,320 --> 00:17:54,760 Speaker 2: the industry spends its money on branding as opposed to 293 00:17:54,960 --> 00:17:55,919 Speaker 2: quality and price. 294 00:17:56,400 --> 00:17:56,640 Speaker 1: Yeah. 295 00:17:56,640 --> 00:18:01,120 Speaker 2: Furthermore, there's an incentive to bundle product to make them 296 00:18:01,160 --> 00:18:05,679 Speaker 2: more complicated and more difficult to shop for. It's just 297 00:18:05,720 --> 00:18:09,320 Speaker 2: becomes really hard to shop when products are quoted in 298 00:18:10,040 --> 00:18:12,359 Speaker 2: units that are not commensurable. When it you know, you 299 00:18:12,800 --> 00:18:16,600 Speaker 2: just can't figure out the bundles that you're that you're 300 00:18:16,640 --> 00:18:21,480 Speaker 2: really comparing. I mean, one example of that, honestly is 301 00:18:21,480 --> 00:18:24,760 Speaker 2: is a whole life insurance. So whole life insurance is 302 00:18:24,760 --> 00:18:28,560 Speaker 2: a combination of a tax advantage savings product and an 303 00:18:28,560 --> 00:18:32,119 Speaker 2: insurance policy. And it made great sense back in the 304 00:18:32,160 --> 00:18:34,359 Speaker 2: old days before four oh one k is when it 305 00:18:34,400 --> 00:18:38,200 Speaker 2: was the only form of tax protected savings you could 306 00:18:38,320 --> 00:18:42,600 Speaker 2: you could have. But today it's a confusing bundle of 307 00:18:43,119 --> 00:18:46,160 Speaker 2: a four oh one K like product and an insurance product. 308 00:18:46,200 --> 00:18:48,600 Speaker 2: It's very hard to figure out what the what the 309 00:18:48,640 --> 00:18:52,560 Speaker 2: cost really is. Or structured products is another example. These 310 00:18:52,560 --> 00:18:56,320 Speaker 2: are very popular in Europe and Asia and are beginning 311 00:18:56,320 --> 00:18:58,600 Speaker 2: to come in in this country. You know where you're offered. 312 00:19:00,840 --> 00:19:03,240 Speaker 2: We have ETFs now that have this structure. You know 313 00:19:03,280 --> 00:19:06,679 Speaker 2: you're going to get the return on the S and 314 00:19:06,760 --> 00:19:11,359 Speaker 2: P less some amount, but with some downside protection. If 315 00:19:11,440 --> 00:19:14,679 Speaker 2: it falls by more than this percent, it's almost impossible 316 00:19:14,680 --> 00:19:18,600 Speaker 2: to figure out how that thing is being priced. So 317 00:19:18,960 --> 00:19:21,120 Speaker 2: you know, the vision that my co othrone I have 318 00:19:21,440 --> 00:19:26,119 Speaker 2: is let's try to design a set of very simple, 319 00:19:26,240 --> 00:19:30,320 Speaker 2: standalone products that are easy to shop for, and let's 320 00:19:30,400 --> 00:19:33,600 Speaker 2: ensure that the financial industry offers those products. It can 321 00:19:33,640 --> 00:19:37,080 Speaker 2: certainly offer other products as well, but those must be offered. 322 00:19:37,600 --> 00:19:41,480 Speaker 2: We don't tell firms how much to charge, but we 323 00:19:41,640 --> 00:19:44,160 Speaker 2: just tell them the units in which prices are quoted. 324 00:19:44,920 --> 00:19:48,840 Speaker 2: Then we let competition go to work. So our vision 325 00:19:49,040 --> 00:19:52,119 Speaker 2: is that shopping for finance products should be as easy 326 00:19:52,119 --> 00:19:55,800 Speaker 2: as shopping for a headache remedy. You know a painkiller. 327 00:19:55,880 --> 00:19:57,600 Speaker 2: I go into I've got a headache. I go into 328 00:19:57,600 --> 00:20:01,919 Speaker 2: the pharmacy. I go to the shelf. There's Idewprofen. You 329 00:20:01,960 --> 00:20:05,040 Speaker 2: know have the you have Advil, the brand name, and 330 00:20:05,160 --> 00:20:07,359 Speaker 2: right next to it, you have the generic bottle of 331 00:20:07,359 --> 00:20:10,960 Speaker 2: the pharmacy brand. But the active ingredients are the same, 332 00:20:11,200 --> 00:20:13,720 Speaker 2: the dosage is the same. It's two pills either way, 333 00:20:14,520 --> 00:20:16,679 Speaker 2: and there's a little label on the shelf that tells 334 00:20:16,720 --> 00:20:20,120 Speaker 2: you the price in comparable units. And then you can 335 00:20:20,160 --> 00:20:22,040 Speaker 2: decide do you want the brand, do you want to 336 00:20:22,080 --> 00:20:27,200 Speaker 2: save money? It's very easy to shop, and we think 337 00:20:27,760 --> 00:20:29,919 Speaker 2: personal finance shopping should be more like that. 338 00:20:30,520 --> 00:20:32,119 Speaker 1: And you know that you can go to Costco and 339 00:20:32,160 --> 00:20:34,960 Speaker 1: buy twenty thousand pills in one bottle, so you never 340 00:20:35,000 --> 00:20:38,400 Speaker 1: have to buy them again for the rest of your life. Yes, 341 00:20:39,359 --> 00:20:42,080 Speaker 1: I got more to get to with you, John, including 342 00:20:42,520 --> 00:20:46,159 Speaker 1: how should we rebuild the financial system? What are the 343 00:20:46,600 --> 00:20:48,240 Speaker 1: what are the best places to start? We'll talk about 344 00:20:48,240 --> 00:20:57,919 Speaker 1: that and more right after this tack with professor at 345 00:20:57,960 --> 00:21:01,119 Speaker 1: John Campbell. We're talking about why money decisions feel rigged. 346 00:21:01,600 --> 00:21:05,359 Speaker 1: I'm curious, John, are there financial products that you think 347 00:21:05,560 --> 00:21:08,359 Speaker 1: simply just should not exist in their current form, or 348 00:21:08,400 --> 00:21:11,040 Speaker 1: maybe should not exist at all, Ones that are just 349 00:21:11,520 --> 00:21:15,439 Speaker 1: too predatory and people don't understand the trade off they're making, 350 00:21:15,560 --> 00:21:18,080 Speaker 1: or at least a vast majority of people don't really. 351 00:21:18,760 --> 00:21:21,240 Speaker 1: I mean, I'm curious to hear you. I could give 352 00:21:21,280 --> 00:21:23,320 Speaker 1: examples of what I think might fit into that category, 353 00:21:23,359 --> 00:21:24,040 Speaker 1: but I'll let you roll. 354 00:21:24,080 --> 00:21:27,240 Speaker 2: Yeah. Well, I'll give you an example that may surprise you. 355 00:21:27,320 --> 00:21:31,800 Speaker 2: It isn't quite a financial product exactly, but the institution 356 00:21:31,960 --> 00:21:34,359 Speaker 2: of points that we have in the mortgage system in 357 00:21:34,400 --> 00:21:36,840 Speaker 2: this country is something that I would abolish in a 358 00:21:36,840 --> 00:21:39,359 Speaker 2: heartbeat if I had the power to do it. So 359 00:21:39,520 --> 00:21:42,800 Speaker 2: what are points? Okay, you get a mortgage, you have 360 00:21:42,880 --> 00:21:45,880 Speaker 2: a rate. Maybe you do shop around, maybe you get 361 00:21:45,880 --> 00:21:48,720 Speaker 2: a good APR. Then you have to go to the 362 00:21:48,760 --> 00:21:51,800 Speaker 2: closing and there's closing costs and it's several thousand dollars, 363 00:21:52,440 --> 00:21:55,960 Speaker 2: and if you're short of money, you can borrow those 364 00:21:56,000 --> 00:22:01,240 Speaker 2: closing costs. That will be done through the institution of points. 365 00:22:01,600 --> 00:22:05,000 Speaker 2: What will happen is the mortgage lender will say, will 366 00:22:05,080 --> 00:22:07,399 Speaker 2: lend you a little extra money to cover the closing costs, 367 00:22:07,480 --> 00:22:11,920 Speaker 2: but we'll charge you a higher rate on your mortgage. Alternatively, 368 00:22:11,920 --> 00:22:13,720 Speaker 2: if you have extra money, you can bring it to 369 00:22:13,760 --> 00:22:16,119 Speaker 2: the closing, give it to the mortgage lender, and the 370 00:22:16,160 --> 00:22:20,479 Speaker 2: lower your rate. Now, when you stop and think about it, 371 00:22:20,520 --> 00:22:24,400 Speaker 2: this is weird. This is changing the amount of debt 372 00:22:24,440 --> 00:22:27,600 Speaker 2: that you have, but the officially recorded amount of debt, 373 00:22:27,680 --> 00:22:32,359 Speaker 2: the mortgage balance, doesn't change. What changes is the interest rate. Well, 374 00:22:31,800 --> 00:22:36,440 Speaker 2: that's not how it should work now. Of course, you're 375 00:22:36,520 --> 00:22:39,360 Speaker 2: changing your monthly payment either way. So you might say 376 00:22:39,359 --> 00:22:42,760 Speaker 2: it doesn't matter, but it does matter because that higher 377 00:22:42,840 --> 00:22:44,840 Speaker 2: rate that you promise to pay, if you borrow a 378 00:22:44,840 --> 00:22:49,399 Speaker 2: little extra, you still can refinance, so you may not 379 00:22:49,520 --> 00:22:52,000 Speaker 2: have to pay it for very long if you refinance. 380 00:22:53,280 --> 00:22:58,119 Speaker 2: So taking points gives you an incentive to refinance. Now, 381 00:22:58,760 --> 00:23:02,880 Speaker 2: what happens, unfortunately, is that less sophisticated people don't get 382 00:23:02,920 --> 00:23:07,040 Speaker 2: that they borrow the extra money, they they pay the 383 00:23:07,200 --> 00:23:12,120 Speaker 2: higher rate the points for a long long time. They 384 00:23:12,119 --> 00:23:15,480 Speaker 2: do very poorly out of it. Sophisticated people, on the 385 00:23:15,480 --> 00:23:20,240 Speaker 2: other hand, take points and refinance. So once again we 386 00:23:20,280 --> 00:23:23,760 Speaker 2: get this transfer from the less sophisticated to the more sophisticated, 387 00:23:23,840 --> 00:23:28,199 Speaker 2: but also we get a lot of unnecessary refinancing. And 388 00:23:28,240 --> 00:23:32,320 Speaker 2: refinancing is expensive. You know, there's costs. Then there's time 389 00:23:32,400 --> 00:23:36,920 Speaker 2: and lawyers and paperwork, and you know, title insurance, and 390 00:23:37,960 --> 00:23:42,119 Speaker 2: so we're running a very wasteful system that is very confusing, 391 00:23:42,880 --> 00:23:46,720 Speaker 2: and it's all completely unnecessary. You could easily have a 392 00:23:46,760 --> 00:23:50,480 Speaker 2: system whereby if you need to cover your closing costs, 393 00:23:50,560 --> 00:23:53,879 Speaker 2: you simply add that amount to the mortgage balance and 394 00:23:53,920 --> 00:23:59,400 Speaker 2: maybe you exempt that little slice from LTV requirements so 395 00:23:59,440 --> 00:24:04,399 Speaker 2: that you're allowed to do that without crossing a regular 396 00:24:04,440 --> 00:24:08,840 Speaker 2: tree boundary. It would be much simpler and easier for 397 00:24:08,840 --> 00:24:11,080 Speaker 2: people to understand the cost of the credit that they're 398 00:24:11,119 --> 00:24:12,280 Speaker 2: getting when they take points. 399 00:24:12,400 --> 00:24:15,640 Speaker 1: Yeah, you talk about insurance in the book. You talked 400 00:24:15,680 --> 00:24:18,520 Speaker 1: out about that as a key part of protecting yourself financially, 401 00:24:18,560 --> 00:24:20,320 Speaker 1: which you can. You already kind of talked about whole 402 00:24:20,320 --> 00:24:22,880 Speaker 1: life insurance and how that product makes very little sense 403 00:24:22,920 --> 00:24:26,520 Speaker 1: for most people these days. Term life insurance so much 404 00:24:26,560 --> 00:24:30,359 Speaker 1: cheaper and so much it's so much easier to compare 405 00:24:30,400 --> 00:24:34,880 Speaker 1: apples to apples, But people don't seem to know, you know, 406 00:24:35,040 --> 00:24:37,880 Speaker 1: which insurance product to prioritize. Like a lot of people 407 00:24:37,880 --> 00:24:39,800 Speaker 1: are like, I need life insurance, Like I, I guess 408 00:24:39,800 --> 00:24:43,920 Speaker 1: I'll go with whole life, or they buy extended warranties 409 00:24:44,040 --> 00:24:46,760 Speaker 1: on products like at best Buy or something like that 410 00:24:47,119 --> 00:24:50,480 Speaker 1: because the salesperson says, well, what if your computer fails, 411 00:24:50,520 --> 00:24:53,440 Speaker 1: Like you certainly don't want to have to buy another 412 00:24:53,520 --> 00:24:57,119 Speaker 1: thousand dollars computer, And maybe they do that and avoid 413 00:24:57,160 --> 00:24:59,320 Speaker 1: life insurance, so they're buying the wrong kind of insurance. 414 00:24:59,359 --> 00:25:03,000 Speaker 1: Is that a failure of the system or of our 415 00:25:03,040 --> 00:25:05,840 Speaker 1: inability to help people understand which products make the most 416 00:25:05,840 --> 00:25:06,360 Speaker 1: sense for them. 417 00:25:06,880 --> 00:25:12,840 Speaker 2: Well, it's a combination of both. But I appreciate that 418 00:25:12,960 --> 00:25:15,639 Speaker 2: you brought up this problem with insurance that people often, 419 00:25:16,480 --> 00:25:21,960 Speaker 2: you know, don't buy the insurance against the big catastrophes, 420 00:25:22,080 --> 00:25:25,679 Speaker 2: and then they do spend money on ensuring small risks, 421 00:25:25,880 --> 00:25:29,560 Speaker 2: you know, extended warranties being the big example. So we 422 00:25:29,640 --> 00:25:32,920 Speaker 2: have a chapter in the book where we called Living 423 00:25:32,960 --> 00:25:36,800 Speaker 2: with Risk, where we try to explain why it doesn't 424 00:25:36,800 --> 00:25:39,520 Speaker 2: make sense to buy an extended warranty and why it 425 00:25:39,560 --> 00:25:44,280 Speaker 2: does make sense to buy insurance against big risks disability, death, 426 00:25:44,400 --> 00:25:48,000 Speaker 2: and so forth. The problem is that people think about 427 00:25:48,040 --> 00:25:51,639 Speaker 2: insurance sort of intuitively and emotionally, as you mentioned. You know, 428 00:25:51,680 --> 00:25:54,000 Speaker 2: when you're buying a lovely new computer, you know, you 429 00:25:54,040 --> 00:25:57,520 Speaker 2: can just imagine, you know, your kids spilling coffee on it, 430 00:25:57,640 --> 00:26:00,480 Speaker 2: or coke or you know, so it's so easy to 431 00:26:00,560 --> 00:26:03,120 Speaker 2: imagine the destruction and then you want to buy protection 432 00:26:03,200 --> 00:26:09,240 Speaker 2: against it for emotional reasons. It's also true that salespeople 433 00:26:10,040 --> 00:26:13,360 Speaker 2: know how to exploit the anchoring effect. So the anchoring 434 00:26:13,359 --> 00:26:16,600 Speaker 2: effect is that we judge costs relative to whatever numbers 435 00:26:16,600 --> 00:26:18,600 Speaker 2: are sort of in our head right at the moment. 436 00:26:18,920 --> 00:26:22,080 Speaker 2: So if I've just bought a car, you know, the 437 00:26:22,119 --> 00:26:25,000 Speaker 2: cost of the car is you know, tens of thousands 438 00:26:25,040 --> 00:26:30,080 Speaker 2: of dollars right, so at that moment, I have a 439 00:26:30,200 --> 00:26:33,280 Speaker 2: big number in my head. If the if the salesman 440 00:26:33,320 --> 00:26:35,520 Speaker 2: now says, oh, for a you know, for a mere 441 00:26:35,680 --> 00:26:39,960 Speaker 2: four hundred dollars, you can get this, you know this 442 00:26:39,960 --> 00:26:43,000 Speaker 2: this extra product. Well, that sounds like nothing right in 443 00:26:43,040 --> 00:26:43,960 Speaker 2: the context of the. 444 00:26:43,920 --> 00:26:46,800 Speaker 1: Thousands, especially if you roll it into the payment and. 445 00:26:46,760 --> 00:26:54,000 Speaker 2: It's the month right exactly. And so the confusion that 446 00:26:54,040 --> 00:26:58,840 Speaker 2: we have, the mistakes that we all make, are exploited 447 00:26:58,960 --> 00:27:03,680 Speaker 2: by salespeople. Right. Salespeople know how to get you when 448 00:27:03,720 --> 00:27:06,879 Speaker 2: you are vulnerable and to make a very compelling sales 449 00:27:06,920 --> 00:27:09,200 Speaker 2: pitch to hooking to your emotions. 450 00:27:10,000 --> 00:27:12,440 Speaker 1: Okay, so we're talking about the reality of human fickleness, 451 00:27:12,520 --> 00:27:16,520 Speaker 1: human emotion. Can the financial system can change us to 452 00:27:16,520 --> 00:27:22,680 Speaker 1: the financial system solve for our irrationality, our exuberance, or 453 00:27:23,400 --> 00:27:25,600 Speaker 1: I mean just all those things that we feel when 454 00:27:25,600 --> 00:27:26,480 Speaker 1: we're making decisions. 455 00:27:27,359 --> 00:27:31,960 Speaker 2: Well, you know, not completely. You know, human nature is 456 00:27:32,040 --> 00:27:36,000 Speaker 2: human nature. I'm not trying to sell a sort of 457 00:27:36,480 --> 00:27:40,639 Speaker 2: robot paradise where we all are perfectly rational, but I 458 00:27:41,200 --> 00:27:43,399 Speaker 2: think we can move in that direction and make things 459 00:27:43,520 --> 00:27:46,520 Speaker 2: a little easier. And you know, we make an analogy 460 00:27:46,560 --> 00:27:48,920 Speaker 2: in the book. Think back one hundred and twenty years, 461 00:27:48,960 --> 00:27:53,840 Speaker 2: one hundred and thirty years the pharmaceutical industry was completely 462 00:27:53,880 --> 00:27:59,600 Speaker 2: unregulated and people were selling legitimate medicines. There were a 463 00:27:59,640 --> 00:28:02,480 Speaker 2: lot of new medicines coming out that really worked, but 464 00:28:02,560 --> 00:28:06,199 Speaker 2: the people were also selling snake oil and you know, 465 00:28:07,680 --> 00:28:11,000 Speaker 2: opiates and all kinds of stuff that was really, really bad. 466 00:28:11,200 --> 00:28:15,680 Speaker 2: And we did put in place a system of medical 467 00:28:15,720 --> 00:28:20,159 Speaker 2: regulation that restricts access to the more dangerous drugs but 468 00:28:20,320 --> 00:28:25,200 Speaker 2: allows safe and well established medicines to be sold over 469 00:28:25,240 --> 00:28:28,600 Speaker 2: the counter. And we all take that for granted. And 470 00:28:28,640 --> 00:28:31,120 Speaker 2: I don't think anybody says, hey, why do we do this? 471 00:28:31,680 --> 00:28:34,399 Speaker 2: You know, people should figure it out for themselves. Why 472 00:28:34,480 --> 00:28:39,480 Speaker 2: are we protecting people from themselves with medicines? I mean, 473 00:28:39,520 --> 00:28:43,520 Speaker 2: I know there's some controversy now about the role of 474 00:28:43,560 --> 00:28:47,360 Speaker 2: the FDA, and you know, it's not that there's no controversy, 475 00:28:47,400 --> 00:28:49,280 Speaker 2: but I don't think anybody wants to go back to 476 00:28:49,320 --> 00:28:52,520 Speaker 2: the wild West of one hundred and twenty years ago. 477 00:28:53,160 --> 00:28:56,640 Speaker 2: And actually, some of the mistakes people making personal finance 478 00:28:56,760 --> 00:29:02,760 Speaker 2: can be almost as devastating as taking a medicine that 479 00:29:02,840 --> 00:29:03,880 Speaker 2: leaves you disabled. 480 00:29:04,040 --> 00:29:07,800 Speaker 1: Sure, yeah, yeah, leaves you kind of financially disabled for 481 00:29:08,960 --> 00:29:12,760 Speaker 1: potentially years, right by making a mistake or getting taking 482 00:29:12,760 --> 00:29:16,000 Speaker 1: a product. I think of PAYDA loans and just people 483 00:29:16,120 --> 00:29:18,000 Speaker 1: not unders thinking they can pay it back alone in 484 00:29:18,040 --> 00:29:19,760 Speaker 1: a certain amount of time not being able to and 485 00:29:19,800 --> 00:29:24,960 Speaker 1: not realizing the perpetual nature of its impact when you 486 00:29:25,000 --> 00:29:28,560 Speaker 1: can't pay it back quickly. And I'm curious you talk 487 00:29:28,560 --> 00:29:31,480 Speaker 1: about to the downside of loyalty. I think it's like 488 00:29:31,600 --> 00:29:33,840 Speaker 1: very true. For instance, let's say car and homeowners insurance. 489 00:29:33,880 --> 00:29:35,360 Speaker 1: It's one of those things where if you don't shop 490 00:29:35,360 --> 00:29:36,880 Speaker 1: it every couple of years, you could be paying far 491 00:29:37,000 --> 00:29:40,120 Speaker 1: more right than you think. But don't just listen to 492 00:29:40,120 --> 00:29:42,440 Speaker 1: the commercial and shop with one company who's telling you 493 00:29:42,440 --> 00:29:43,640 Speaker 1: they're they're the ones that are going to save you 494 00:29:43,680 --> 00:29:47,160 Speaker 1: fifteen or twenty percent. It's that, but then it's also 495 00:29:47,320 --> 00:29:50,880 Speaker 1: there's also a level of stickiness right that prevents people 496 00:29:50,960 --> 00:29:53,800 Speaker 1: from being able to move from one company to another. 497 00:29:53,840 --> 00:29:56,840 Speaker 1: I'm thinking, if you wanted to switch banks because you're 498 00:29:56,880 --> 00:29:59,200 Speaker 1: realizing it's dawning on you, you're not getting the best 499 00:30:00,040 --> 00:30:01,800 Speaker 1: getting the best experience, you're not getting the best rate, 500 00:30:01,800 --> 00:30:03,480 Speaker 1: and maybe you are being feed more than you want. 501 00:30:03,760 --> 00:30:06,840 Speaker 1: But my goodness, it's such a leap. It's going to 502 00:30:06,920 --> 00:30:10,360 Speaker 1: take all Saturday or whatever right to migrate over from 503 00:30:10,400 --> 00:30:13,000 Speaker 1: one bank to the other. So what do you think 504 00:30:13,040 --> 00:30:16,720 Speaker 1: about loyalty and stickiness that maybe keep people stuck where 505 00:30:16,720 --> 00:30:17,040 Speaker 1: they are. 506 00:30:17,600 --> 00:30:22,160 Speaker 2: Yes, I mean the loyalty point is that, you know, 507 00:30:22,240 --> 00:30:25,920 Speaker 2: it's sad that many people feel, hey, I'm a longtime 508 00:30:25,960 --> 00:30:29,800 Speaker 2: customer of this company, this bank called, this insurance company. 509 00:30:29,680 --> 00:30:31,640 Speaker 2: They're going to they should treat they will treat me 510 00:30:31,760 --> 00:30:34,840 Speaker 2: right because I'm a long term customer. And people don't 511 00:30:34,880 --> 00:30:37,120 Speaker 2: realize that actually you're going to be treated worst of 512 00:30:37,160 --> 00:30:40,440 Speaker 2: all if you're a long term customer, because the firm 513 00:30:42,200 --> 00:30:45,200 Speaker 2: rightly thinks that you're not paying attention to the alternatives. 514 00:30:45,720 --> 00:30:48,240 Speaker 2: And there's a lot of evidence of that. So that 515 00:30:48,400 --> 00:30:54,160 Speaker 2: is sad. Now, the switching costs is a very big issue, 516 00:30:54,200 --> 00:30:58,240 Speaker 2: and you know, particularly in this day and age, where 517 00:30:58,280 --> 00:31:01,520 Speaker 2: we set up all kinds of things to do, you know, 518 00:31:01,600 --> 00:31:05,800 Speaker 2: to make automatic payments, and you know, we we give 519 00:31:05,840 --> 00:31:08,440 Speaker 2: our bank account numbers to all kinds of providers, and 520 00:31:08,520 --> 00:31:11,600 Speaker 2: so there's this whole system that we set up that 521 00:31:11,760 --> 00:31:17,720 Speaker 2: is then hard to move. There's a bit of a 522 00:31:17,720 --> 00:31:22,320 Speaker 2: technological race. You know. It may be that the if if, 523 00:31:22,440 --> 00:31:25,760 Speaker 2: if agentic AI arrives that you'll just be able to 524 00:31:25,800 --> 00:31:29,280 Speaker 2: tell your AI, hey, Claude, you know, switch switch banks 525 00:31:29,320 --> 00:31:35,160 Speaker 2: today and save your Saturday. On the other hand, of course, 526 00:31:35,320 --> 00:31:43,160 Speaker 2: there's the risk that people get locked into UH relationships 527 00:31:43,200 --> 00:31:47,120 Speaker 2: with AI agents that are actually not working for them, 528 00:31:47,160 --> 00:31:50,520 Speaker 2: but are working for you know, the bank, or the 529 00:31:50,520 --> 00:31:54,560 Speaker 2: tech company, or whoever's paying the electricity bill for the AI. 530 00:31:54,960 --> 00:31:58,320 Speaker 2: So it's very hard to know where technology is going 531 00:31:58,360 --> 00:32:01,520 Speaker 2: with this. But I think we all as human beings 532 00:32:01,600 --> 00:32:04,080 Speaker 2: have to remain vigilant and try to act in our 533 00:32:04,120 --> 00:32:05,080 Speaker 2: own interests. 534 00:32:05,960 --> 00:32:10,600 Speaker 1: So you have thoughts on rebuilding the personal finance system 535 00:32:10,680 --> 00:32:13,160 Speaker 1: that you expressed in your book, But then there's also 536 00:32:13,200 --> 00:32:16,960 Speaker 1: the financial literacy component of this, and you, like you 537 00:32:17,320 --> 00:32:20,200 Speaker 1: said in the beginning, you teach a personal finance course 538 00:32:20,240 --> 00:32:23,320 Speaker 1: at Harvard. Which one of those do you think is 539 00:32:23,600 --> 00:32:26,120 Speaker 1: most important? Is it more important to rebuild the financial 540 00:32:26,160 --> 00:32:28,880 Speaker 1: system to make it easier for people to not have 541 00:32:28,960 --> 00:32:31,720 Speaker 1: to educate nearly as much? I mean, we've done over 542 00:32:32,040 --> 00:32:34,920 Speaker 1: you know, eleven hundred episodes have had of money because 543 00:32:35,120 --> 00:32:39,640 Speaker 1: there's just a lot of confusion, right, and so which, Yeah, 544 00:32:39,640 --> 00:32:41,960 Speaker 1: if you had to pick one, rebuild it or help 545 00:32:41,960 --> 00:32:45,080 Speaker 1: people to understand it the way it works, which one 546 00:32:45,120 --> 00:32:47,960 Speaker 1: would you say has more necessity? 547 00:32:48,040 --> 00:32:51,960 Speaker 2: The financial literacy work that we have in place is 548 00:32:52,000 --> 00:32:55,440 Speaker 2: absolutely vital. I certainly would not want to take it away. 549 00:32:56,880 --> 00:33:00,520 Speaker 2: But I think the rewards to amping it up further 550 00:33:01,760 --> 00:33:06,400 Speaker 2: modest compared to the rewards of really trying to rebuild 551 00:33:06,440 --> 00:33:09,880 Speaker 2: the system to make it easier to work. And what's 552 00:33:09,920 --> 00:33:12,040 Speaker 2: maybe so let me I mean, let me explain that 553 00:33:12,080 --> 00:33:14,719 Speaker 2: a little bit more. I mean, how how can we 554 00:33:14,880 --> 00:33:18,200 Speaker 2: how can we strengthen our financial literacy efforts? What more 555 00:33:18,240 --> 00:33:20,040 Speaker 2: can we do than we're doing now? Well, one thing 556 00:33:20,080 --> 00:33:22,720 Speaker 2: we can do is make sure that it's in high 557 00:33:22,720 --> 00:33:26,440 Speaker 2: school curricula in every state. And that's a goal of 558 00:33:26,480 --> 00:33:29,800 Speaker 2: the Council for Economic Education, that's a personal goal of mine. 559 00:33:29,840 --> 00:33:32,960 Speaker 2: I think that would be very good, But we should 560 00:33:33,000 --> 00:33:35,520 Speaker 2: be realistic about the limits of what you can do 561 00:33:35,640 --> 00:33:38,160 Speaker 2: in high school. You know, high school kids don't have 562 00:33:38,240 --> 00:33:41,840 Speaker 2: to make many of the decisions that adults later make. 563 00:33:42,600 --> 00:33:44,680 Speaker 2: Maybe they take out a student loan if they're going 564 00:33:44,720 --> 00:33:47,320 Speaker 2: to college, maybe they get a credit card, but you know, 565 00:33:47,360 --> 00:33:51,360 Speaker 2: they're not thinking about mortgages, retirement, you know, life insurance, 566 00:33:51,400 --> 00:33:56,760 Speaker 2: those things and all too easily. High school financial education 567 00:33:56,960 --> 00:34:00,280 Speaker 2: can be like imagine if drivers ed were just the 568 00:34:00,280 --> 00:34:04,040 Speaker 2: classroom piece without any road experience. How much would the 569 00:34:04,080 --> 00:34:07,200 Speaker 2: kids learn if they were sitting in a classroom studying 570 00:34:07,240 --> 00:34:09,319 Speaker 2: what you do when you see a stop sign. I mean, 571 00:34:09,800 --> 00:34:12,400 Speaker 2: they wouldn't really they wouldn't really get it. It wouldn't stick, 572 00:34:13,120 --> 00:34:16,400 Speaker 2: and that this is this is the problem. Now in college, 573 00:34:16,400 --> 00:34:20,880 Speaker 2: what I'm teaching, a lot of my students are college seniors. 574 00:34:20,960 --> 00:34:23,359 Speaker 2: They are going to be making big decisions, and they 575 00:34:23,400 --> 00:34:26,160 Speaker 2: really care and they really get it. But I'm aware 576 00:34:26,200 --> 00:34:28,920 Speaker 2: I'm teaching some of the most privileged people in the country. 577 00:34:29,000 --> 00:34:33,960 Speaker 2: I'm not going to, you know, ameliorate inequality by further 578 00:34:34,160 --> 00:34:38,600 Speaker 2: educating Harvard kids and and anyone in college is in 579 00:34:38,640 --> 00:34:41,120 Speaker 2: fact going to end up in the at least the 580 00:34:41,160 --> 00:34:46,279 Speaker 2: top half of the income distribution. Now, the work that 581 00:34:46,360 --> 00:34:48,480 Speaker 2: you do, you know with your podcast, I mean, this 582 00:34:48,600 --> 00:34:52,520 Speaker 2: is great work. It's very important. But you know you're 583 00:34:52,560 --> 00:34:55,520 Speaker 2: gonna you're going to reach the people who are self 584 00:34:55,520 --> 00:34:59,319 Speaker 2: improvement type, people who who are going to benefit, but 585 00:34:59,400 --> 00:35:02,240 Speaker 2: it's going to be small. You're not going to change 586 00:35:03,360 --> 00:35:08,479 Speaker 2: financial life for the hundreds of millions of people, even 587 00:35:08,520 --> 00:35:10,959 Speaker 2: in your wildest dreams. You know that just won't happen. 588 00:35:11,080 --> 00:35:15,200 Speaker 2: I wish so, so I think we should keep doing 589 00:35:15,239 --> 00:35:18,399 Speaker 2: what we're doing and try to do it better. But 590 00:35:18,440 --> 00:35:21,319 Speaker 2: there's it's really limited what more we can do, I 591 00:35:21,320 --> 00:35:23,520 Speaker 2: think on that front, and that's why I think we 592 00:35:23,560 --> 00:35:27,520 Speaker 2: ought to turn our attention to rebuilding the system to 593 00:35:27,560 --> 00:35:30,680 Speaker 2: make it easier, and I think we can have more 594 00:35:30,719 --> 00:35:33,640 Speaker 2: impact on the people who most need the help, who 595 00:35:33,640 --> 00:35:36,759 Speaker 2: are not listening to your podcast and not going to 596 00:35:36,800 --> 00:35:40,160 Speaker 2: college and maybe forget what they learned in high school, 597 00:35:40,160 --> 00:35:41,080 Speaker 2: if they learned anything. 598 00:35:41,160 --> 00:35:44,160 Speaker 1: So in regards to rebuilding the personal finance system, then 599 00:35:44,320 --> 00:35:48,480 Speaker 1: what are maybe two or the three lowest pieces of fruit, right, Like, 600 00:35:48,520 --> 00:35:51,120 Speaker 1: if we're like, let's just let's do the easy stuff, 601 00:35:51,160 --> 00:35:53,200 Speaker 1: the stuff that's going to make the biggest difference, it's 602 00:35:53,200 --> 00:35:55,279 Speaker 1: going to be the easiest to fix, it's going to 603 00:35:55,320 --> 00:35:57,640 Speaker 1: help the most people, what would those things be? 604 00:35:57,840 --> 00:36:02,600 Speaker 2: Right? So, I would name two things. One is I 605 00:36:02,600 --> 00:36:05,800 Speaker 2: think I would really try to move the retirement saving 606 00:36:05,880 --> 00:36:10,120 Speaker 2: system in this country towards a universal retirement account that 607 00:36:10,200 --> 00:36:12,279 Speaker 2: you carry with you, You open it when you first 608 00:36:12,360 --> 00:36:15,640 Speaker 2: start work, and then it's with you for life, and 609 00:36:15,719 --> 00:36:19,840 Speaker 2: it's one thing, it's not multiple things. The problem with 610 00:36:19,880 --> 00:36:22,759 Speaker 2: our system is now there's a profusion of accounts many 611 00:36:22,800 --> 00:36:27,759 Speaker 2: many different things. But profusion leads to confusion. I would 612 00:36:27,880 --> 00:36:31,120 Speaker 2: rather see one account available to everybody that they carry 613 00:36:31,120 --> 00:36:34,040 Speaker 2: with them. Now that may sound like pie in the sky, 614 00:36:34,160 --> 00:36:36,880 Speaker 2: but that's the system they have in Australia basically, and 615 00:36:36,920 --> 00:36:41,160 Speaker 2: it's very well regarded internationally. It works very well, and 616 00:36:41,239 --> 00:36:43,239 Speaker 2: I think we could get there if we had some 617 00:36:44,040 --> 00:36:44,839 Speaker 2: political will. 618 00:36:45,040 --> 00:36:46,960 Speaker 1: And I think what you're getting at there too, tell 619 00:36:46,960 --> 00:36:50,000 Speaker 1: me if I'm wrong, is even just the small idiosyncratic 620 00:36:50,040 --> 00:36:53,640 Speaker 1: differences between some of those accounts. If you turn four 621 00:36:53,680 --> 00:36:57,480 Speaker 1: one K money into an IRA, which you can totally do, 622 00:36:58,480 --> 00:37:01,840 Speaker 1: there are some sides and there are some downsides that 623 00:37:01,920 --> 00:37:04,520 Speaker 1: you have to consider before you make that move. And 624 00:37:04,840 --> 00:37:07,520 Speaker 1: most people don't know about this, those small things that 625 00:37:07,600 --> 00:37:11,719 Speaker 1: could cost them money or access to that money. And 626 00:37:12,160 --> 00:37:16,000 Speaker 1: so if it were one simple system with just very 627 00:37:16,040 --> 00:37:18,560 Speaker 1: easy to understand rules, it would prevent some of that 628 00:37:18,960 --> 00:37:21,759 Speaker 1: complexity that is pretty unnecessary. 629 00:37:22,360 --> 00:37:25,759 Speaker 2: Absolutely absolutely, So you know, that would be my sort 630 00:37:25,800 --> 00:37:30,560 Speaker 2: of number one thing. I you know, I already mentioned 631 00:37:30,600 --> 00:37:34,480 Speaker 2: mortgage points. I just you know, mortgages are so important. 632 00:37:35,040 --> 00:37:37,760 Speaker 2: I think it's good to focus on the big assets 633 00:37:37,800 --> 00:37:42,000 Speaker 2: and the big liabilities, So retirement savings, mortgages the big things. 634 00:37:43,560 --> 00:37:47,239 Speaker 2: I would streamline and simplify the student debt system so 635 00:37:47,280 --> 00:37:51,759 Speaker 2: that we have income contingent repayment as the default. You 636 00:37:51,800 --> 00:37:53,759 Speaker 2: don't have to opt into it. That's just the way 637 00:37:53,800 --> 00:37:58,239 Speaker 2: it works. Again, you know the UK, Australia, they have 638 00:37:58,360 --> 00:38:03,840 Speaker 2: that system. It's simple, it works well. And then I 639 00:38:04,320 --> 00:38:08,719 Speaker 2: have to say I thought that the Biden administration when 640 00:38:08,760 --> 00:38:12,000 Speaker 2: they were talking about junk fees, I thought they were 641 00:38:12,000 --> 00:38:15,040 Speaker 2: on the right track. The Trump administration has talked about 642 00:38:15,080 --> 00:38:19,840 Speaker 2: capping credit card rates. I think the problem is not 643 00:38:20,040 --> 00:38:23,760 Speaker 2: the interest rate on credit cards, which is certainly high. 644 00:38:23,760 --> 00:38:26,840 Speaker 2: But again, these are small loans and in some cases 645 00:38:26,840 --> 00:38:30,360 Speaker 2: you have high default rates. The problem is not really 646 00:38:30,400 --> 00:38:34,400 Speaker 2: the rates. The problem is the magnitude of late fees, 647 00:38:34,440 --> 00:38:37,759 Speaker 2: which you know you missed by a day and you 648 00:38:38,120 --> 00:38:40,799 Speaker 2: get charged a big fee. The implied APR on that 649 00:38:41,000 --> 00:38:47,160 Speaker 2: is very very high. So sort of capping these trigger 650 00:38:47,239 --> 00:38:49,800 Speaker 2: fees that you can be in a fixed cost that 651 00:38:50,239 --> 00:38:53,160 Speaker 2: you have to pay if you make a little mistake, 652 00:38:53,320 --> 00:38:57,879 Speaker 2: I think that's another good direction to go. It's less 653 00:38:58,239 --> 00:39:01,360 Speaker 2: those are less important in the big scheme of people's lives. 654 00:39:01,400 --> 00:39:06,160 Speaker 2: Those don't tend to ruin a person's life. But I 655 00:39:06,200 --> 00:39:08,200 Speaker 2: still think that would be good to clean up and 656 00:39:08,239 --> 00:39:09,920 Speaker 2: relatively easy to do. 657 00:39:10,080 --> 00:39:12,239 Speaker 1: I think those just frustrate people too. They add up 658 00:39:12,239 --> 00:39:15,080 Speaker 1: and they frustrate people, and that pestering people to death. 659 00:39:15,120 --> 00:39:17,359 Speaker 1: That's that's a problem problem with the system as well. 660 00:39:17,960 --> 00:39:19,560 Speaker 1: Or we'll get more to get to with you, John, 661 00:39:19,600 --> 00:39:22,439 Speaker 1: and cluded, I want to talk about patronizing people, telling 662 00:39:22,480 --> 00:39:24,680 Speaker 1: them what they can and can't do. Does that need 663 00:39:24,719 --> 00:39:26,799 Speaker 1: to be part of the solution. We'll discuss that right 664 00:39:26,840 --> 00:39:38,359 Speaker 1: after this, I'm talking with Professor John Campbell and John, John, 665 00:39:38,600 --> 00:39:41,640 Speaker 1: I love this idea of a more transparent and fair system. 666 00:39:42,800 --> 00:39:45,600 Speaker 1: Do you think it's realistic or what does it take 667 00:39:45,680 --> 00:39:50,160 Speaker 1: to expect profit seeking firms to protect consumers with stronger 668 00:39:50,239 --> 00:39:53,879 Speaker 1: guardrails and to offer them more transparent products that they 669 00:39:53,920 --> 00:39:57,760 Speaker 1: can compare from one provider to another, one company to another. 670 00:39:58,200 --> 00:40:01,759 Speaker 2: So we think that there's two ways to get there, 671 00:40:02,880 --> 00:40:06,040 Speaker 2: you know. One way is what I'll call enlightened self 672 00:40:06,080 --> 00:40:09,839 Speaker 2: interest by the leaders of large financial institutions. I mean, 673 00:40:09,880 --> 00:40:15,040 Speaker 2: it is remarkable and to me rather horrifying that the 674 00:40:15,080 --> 00:40:20,440 Speaker 2: financial industry is so unpopular. You know, big financial firms 675 00:40:20,520 --> 00:40:23,560 Speaker 2: are really in the basement of when when When you 676 00:40:23,600 --> 00:40:27,400 Speaker 2: do surveys of how much do people trust different institutions, 677 00:40:27,440 --> 00:40:30,759 Speaker 2: different businesses, The big financial firms are down there in 678 00:40:30,800 --> 00:40:32,879 Speaker 2: the basement, along with social media. 679 00:40:32,640 --> 00:40:35,040 Speaker 1: Companies Comcast and Ticketmaster. 680 00:40:35,120 --> 00:40:39,920 Speaker 2: Right exactly. So you know, that is very worrying, and 681 00:40:39,960 --> 00:40:43,680 Speaker 2: I think it's actually undermined support for the market economy 682 00:40:43,760 --> 00:40:47,640 Speaker 2: and for the sort of vision of capitalism as a 683 00:40:47,680 --> 00:40:53,680 Speaker 2: system that generates prosperity. You know, even the even the 684 00:40:53,719 --> 00:40:56,920 Speaker 2: Republican Party has become much less free market than it 685 00:40:57,080 --> 00:40:59,560 Speaker 2: used to be. And I think that part of the 686 00:40:59,600 --> 00:41:03,280 Speaker 2: background under that is people's experiences with the financial industry 687 00:41:03,320 --> 00:41:08,680 Speaker 2: have have turned the population against against business in general. 688 00:41:09,680 --> 00:41:13,480 Speaker 2: And that's a problem because finance is a vitally important sector. 689 00:41:13,520 --> 00:41:16,960 Speaker 2: It's the it's the brain of capitalism. It tells the 690 00:41:17,000 --> 00:41:20,920 Speaker 2: economy where to put resources, and it provides services that 691 00:41:20,960 --> 00:41:24,279 Speaker 2: are absolutely essential for all of us to lead, you know, 692 00:41:24,400 --> 00:41:28,319 Speaker 2: a modern life. So we need finance, but it is 693 00:41:28,400 --> 00:41:33,440 Speaker 2: so unpopular. So I think it would be wise for 694 00:41:33,560 --> 00:41:37,800 Speaker 2: the leaders of the financial industry to to to wise 695 00:41:37,880 --> 00:41:41,160 Speaker 2: up and you know, sign up for a sort of 696 00:41:41,160 --> 00:41:45,600 Speaker 2: self regulatory effort along these lines. However, if that, if 697 00:41:45,640 --> 00:41:47,840 Speaker 2: that doesn't happen, the other way to go is through 698 00:41:48,480 --> 00:41:53,120 Speaker 2: government regulation. Now, you know, the political cycle in this 699 00:41:53,200 --> 00:41:56,399 Speaker 2: country is not at a position where that's very likely 700 00:41:56,480 --> 00:42:00,759 Speaker 2: in the near term, but it our book takes a 701 00:42:00,760 --> 00:42:04,320 Speaker 2: global perspective. We emphasize that these problems are actually common 702 00:42:04,360 --> 00:42:09,040 Speaker 2: around the world, not just in the US, and we 703 00:42:09,160 --> 00:42:12,880 Speaker 2: hope that there can be progress made in other countries. 704 00:42:13,880 --> 00:42:17,279 Speaker 2: We do think it's important that the government shouldn't try 705 00:42:17,280 --> 00:42:20,600 Speaker 2: to take over the financial industry. We're not talking about nationalized, 706 00:42:20,680 --> 00:42:23,640 Speaker 2: you know, having government provided finance. We think that would 707 00:42:24,200 --> 00:42:28,480 Speaker 2: would be a disaster because finances are very IT intensive 708 00:42:28,520 --> 00:42:32,560 Speaker 2: business and big government IT projects have a very poor 709 00:42:32,600 --> 00:42:38,160 Speaker 2: track record. We also don't think the government should regulate 710 00:42:38,200 --> 00:42:41,040 Speaker 2: in a kind of heavy handed, backward looking way, coming 711 00:42:41,080 --> 00:42:44,440 Speaker 2: in and saying, you know, you just have a vague 712 00:42:44,520 --> 00:42:47,120 Speaker 2: duty to be nice to your customers and will decide 713 00:42:47,120 --> 00:42:49,360 Speaker 2: after the fact whether you were nice to your customers 714 00:42:49,440 --> 00:42:54,520 Speaker 2: or not. That's that kind of regulation, you know, the 715 00:42:54,560 --> 00:42:58,800 Speaker 2: industry hates, and I can understand why, and it's triggered 716 00:42:58,840 --> 00:43:04,359 Speaker 2: a backlash. In the UK, the Financial Conduct Authority, which 717 00:43:04,520 --> 00:43:08,960 Speaker 2: was which is the consumer regulator, sort of veered in 718 00:43:09,000 --> 00:43:13,319 Speaker 2: that direction and it's triggered a tremendous backtae. We think 719 00:43:13,320 --> 00:43:14,920 Speaker 2: that's not the way to go. The way to go 720 00:43:15,120 --> 00:43:20,600 Speaker 2: is to be forward looking, design focused. The regulator should say, look, 721 00:43:20,719 --> 00:43:24,319 Speaker 2: here's the simple product. This is how it works. These 722 00:43:24,360 --> 00:43:27,600 Speaker 2: are the units you quote prices in. You have to 723 00:43:27,640 --> 00:43:32,000 Speaker 2: offer it. Now, go compete, Yeah, and leave it at that. 724 00:43:32,400 --> 00:43:35,760 Speaker 1: So when you're talking about government regulation, I could see 725 00:43:36,360 --> 00:43:39,239 Speaker 1: I can see multiple sides to that. I also what 726 00:43:39,320 --> 00:43:41,839 Speaker 1: you're talking about credit card caps, right, that mention, even 727 00:43:41,920 --> 00:43:45,200 Speaker 1: just that mention in that pursuit, which has I would say, 728 00:43:45,200 --> 00:43:49,760 Speaker 1: support from people on both sides of the aisle because 729 00:43:49,920 --> 00:43:55,480 Speaker 1: of the way I think Americans and American politicians view 730 00:43:55,880 --> 00:43:58,919 Speaker 1: the credit card companies. It's like, well, let's punish them 731 00:43:59,080 --> 00:44:02,359 Speaker 1: and get interest traits down to ten percent, and we'll 732 00:44:02,400 --> 00:44:05,480 Speaker 1: make everybody happy. It's a populist move of sorts, right, 733 00:44:05,960 --> 00:44:09,320 Speaker 1: But in the long run, you might be pushing people 734 00:44:09,360 --> 00:44:14,719 Speaker 1: towards worst financial products by enacting legislation because the credit 735 00:44:14,760 --> 00:44:18,319 Speaker 1: card companies won't offer credit cards to people who you 736 00:44:18,360 --> 00:44:20,359 Speaker 1: might think, well, yeah, twenty percent interest rates suck, let's 737 00:44:20,360 --> 00:44:23,360 Speaker 1: get rid of them. But if then you're pushed to 738 00:44:23,440 --> 00:44:26,200 Speaker 1: financial products that are worse than credit cards, you've just 739 00:44:26,320 --> 00:44:27,920 Speaker 1: actually created more of a problem. 740 00:44:29,040 --> 00:44:33,120 Speaker 2: Yes, exactly, And so you really have to think hard 741 00:44:33,120 --> 00:44:36,880 Speaker 2: about maintaining access, and you know, price caps are always 742 00:44:36,960 --> 00:44:40,880 Speaker 2: dangerous in that regard. I mean, I will also note 743 00:44:40,880 --> 00:44:43,800 Speaker 2: that it's very sad when people on their own account 744 00:44:43,960 --> 00:44:47,280 Speaker 2: decide that they're so fed up with the formal financial 745 00:44:47,320 --> 00:44:49,600 Speaker 2: system that they want to opt out. And often when 746 00:44:49,600 --> 00:44:52,279 Speaker 2: they opt out, it's out of the frying pan and 747 00:44:52,320 --> 00:44:55,640 Speaker 2: into the fire. Will end up in a worse situation. 748 00:44:55,280 --> 00:44:58,359 Speaker 1: You know, like going with money under the mattress route 749 00:44:58,400 --> 00:44:59,560 Speaker 1: instead of the money. 750 00:44:59,560 --> 00:45:01,520 Speaker 2: If you right, you put your money under the mattress, 751 00:45:01,520 --> 00:45:04,479 Speaker 2: then you earn no interest, or you put your money 752 00:45:04,520 --> 00:45:07,839 Speaker 2: in crypto, and then you're on a roller coaster, you know. 753 00:45:08,000 --> 00:45:11,879 Speaker 2: And I mean it's a tragic fact that crypto has 754 00:45:11,920 --> 00:45:16,120 Speaker 2: been more popular in the African American community than in 755 00:45:16,200 --> 00:45:19,640 Speaker 2: other communities at any income level. And the reason is 756 00:45:19,680 --> 00:45:23,480 Speaker 2: the long black experience with you know, white owned financial 757 00:45:23,480 --> 00:45:30,200 Speaker 2: institutions that abused Black people. But again, going into crypto, 758 00:45:30,840 --> 00:45:32,640 Speaker 2: that's out of the frying pan into the fire. 759 00:45:33,400 --> 00:45:35,080 Speaker 1: Last question for you is there is there a risk 760 00:45:35,120 --> 00:45:37,760 Speaker 1: of being too patronizing here, right, of not allowing people 761 00:45:37,800 --> 00:45:41,520 Speaker 1: to pursue bad behavior if they're so inclined. So the 762 00:45:42,200 --> 00:45:45,800 Speaker 1: think about you're talking about technology index funds, low costs, 763 00:45:45,880 --> 00:45:50,000 Speaker 1: good competition there. Then new technology on the investing front 764 00:45:50,280 --> 00:45:53,160 Speaker 1: allows people to do some really wild, crazy stuff with 765 00:45:53,200 --> 00:45:56,640 Speaker 1: their finances, and we see much to their harm. Right, 766 00:45:57,400 --> 00:46:02,000 Speaker 1: But should people have that ability to say, yolo, I'm 767 00:46:02,000 --> 00:46:06,520 Speaker 1: gonna I'm gonna toss money and start day trading on 768 00:46:07,440 --> 00:46:10,160 Speaker 1: it's at my fingertips on my phone. Should we allow 769 00:46:10,200 --> 00:46:13,120 Speaker 1: that for people? Or even something like buy now, pay later, 770 00:46:13,239 --> 00:46:17,080 Speaker 1: which I think is not a great product for the 771 00:46:17,120 --> 00:46:20,879 Speaker 1: vast majority of people, and it's a slippery slope. Do 772 00:46:20,920 --> 00:46:23,040 Speaker 1: I want it banned because I think it's a mostly 773 00:46:23,080 --> 00:46:26,160 Speaker 1: bad thing for people, or I don't know. I'm curious 774 00:46:26,200 --> 00:46:27,040 Speaker 1: to hear how you think of that? 775 00:46:27,600 --> 00:46:31,440 Speaker 2: Now, you raise a really important issue, and you know, 776 00:46:31,760 --> 00:46:38,359 Speaker 2: we're very cautious. You know. Another example that you didn't 777 00:46:38,400 --> 00:46:41,239 Speaker 2: mention is the rise of sports betting. And you know 778 00:46:42,400 --> 00:46:47,759 Speaker 2: now on the prediction markets with absolutely minimal regulation, so 779 00:46:49,080 --> 00:46:52,080 Speaker 2: is sports betting? You know, how should you think of it? 780 00:46:52,120 --> 00:46:54,319 Speaker 2: If you think of it as a form of entertainment. Well, 781 00:46:54,360 --> 00:46:57,040 Speaker 2: people are allowed to spend money on entertainment. Nobody is 782 00:46:57,080 --> 00:46:59,439 Speaker 2: saying you're not allowed to go to the movies, so 783 00:46:59,760 --> 00:47:02,759 Speaker 2: maybe you should be allowed to do sports betting. I 784 00:47:02,800 --> 00:47:07,040 Speaker 2: think the key is to distinguish the fund that people 785 00:47:07,120 --> 00:47:13,920 Speaker 2: have with speculative activities, distinguish that from the way in 786 00:47:13,960 --> 00:47:18,880 Speaker 2: which they protect their lifetime financial security. So, you know, 787 00:47:18,960 --> 00:47:22,239 Speaker 2: the government has said for a long time now that 788 00:47:22,320 --> 00:47:26,400 Speaker 2: there is a social interest in retirement security because we 789 00:47:26,520 --> 00:47:30,359 Speaker 2: don't want to have poor elderly people, you know, on 790 00:47:30,400 --> 00:47:33,080 Speaker 2: the streets, and that's why we have social Security. But 791 00:47:33,160 --> 00:47:37,759 Speaker 2: that's also why we have tax favored retirement accounts. So 792 00:47:37,800 --> 00:47:40,319 Speaker 2: the government is giving up tax revenue to offer these 793 00:47:40,360 --> 00:47:45,200 Speaker 2: retirement accounts. I think it's clear then along with that 794 00:47:45,280 --> 00:47:48,120 Speaker 2: can come from regulation about what can go on in 795 00:47:48,160 --> 00:47:50,960 Speaker 2: those accounts. We're not going to have a tax favored 796 00:47:51,000 --> 00:47:58,279 Speaker 2: sports betting account, right, So I think it's a matter 797 00:47:58,360 --> 00:48:02,840 Speaker 2: of finding the sensible middle ground. You know, yes, you 798 00:48:02,960 --> 00:48:07,200 Speaker 2: have we have to maintain personal freedom. But if we 799 00:48:07,239 --> 00:48:10,719 Speaker 2: operate a system that is too confusing and difficult for 800 00:48:10,800 --> 00:48:16,279 Speaker 2: most people, the danger is not only that many people 801 00:48:16,320 --> 00:48:21,120 Speaker 2: will end up in horrendous circumstances, but also that popular 802 00:48:21,160 --> 00:48:24,560 Speaker 2: support for the market economy will be will be undermined, 803 00:48:24,600 --> 00:48:26,760 Speaker 2: and we may end up with much more heavy handed, 804 00:48:27,680 --> 00:48:29,040 Speaker 2: dysfunctional regulation. 805 00:48:29,600 --> 00:48:32,960 Speaker 1: Yes, oh my gush that and that that is something 806 00:48:33,040 --> 00:48:38,000 Speaker 1: that does frighten me because we have a young population 807 00:48:38,280 --> 00:48:42,080 Speaker 1: who sees the free market as a negative thing. And 808 00:48:42,120 --> 00:48:45,800 Speaker 1: I understand why. I get it because it's been perverted 809 00:48:45,840 --> 00:48:48,080 Speaker 1: in some ways, and so we need to ensure its 810 00:48:48,080 --> 00:48:51,440 Speaker 1: stability for decades to come, because yeah, it might not 811 00:48:51,480 --> 00:48:55,160 Speaker 1: be the best system, but it's the best system ever created, right, 812 00:48:55,160 --> 00:48:58,239 Speaker 1: that's created the most stability for for people. It's it's 813 00:48:58,239 --> 00:49:00,799 Speaker 1: really it's I mean, it's incredible what it's been able 814 00:49:00,800 --> 00:49:03,080 Speaker 1: to produce in this country and the prosperity it's been 815 00:49:03,080 --> 00:49:06,120 Speaker 1: able to provide. So, Professor John Campbell, I so appreciate 816 00:49:06,160 --> 00:49:08,120 Speaker 1: your time today. Thank you so much for joining me. 817 00:49:08,239 --> 00:49:11,319 Speaker 2: Thank you, thank you. Dyl It's being great to be here, 818 00:49:12,960 --> 00:49:13,279 Speaker 2: all right. 819 00:49:13,520 --> 00:49:17,240 Speaker 1: Uh, that was such a good fun conversation with Professor 820 00:49:17,360 --> 00:49:22,560 Speaker 1: John Campbell, who gets personal finance uh incredibly well. He 821 00:49:22,880 --> 00:49:25,680 Speaker 1: teaches a course on it. And and yet he also 822 00:49:25,960 --> 00:49:30,080 Speaker 1: has this macro view of the whole of the entire 823 00:49:30,560 --> 00:49:33,319 Speaker 1: personal finance system that we all encounter every day. We 824 00:49:33,480 --> 00:49:37,680 Speaker 1: didn't even talk about, right, like the credit bureaus credit reports, 825 00:49:37,760 --> 00:49:40,919 Speaker 1: the extensive errors. How do we fix that? I mean, 826 00:49:41,200 --> 00:49:45,239 Speaker 1: we have all come into a battle an issue with 827 00:49:45,560 --> 00:49:48,920 Speaker 1: a financial service provider at one point or another in 828 00:49:49,000 --> 00:49:51,239 Speaker 1: our lives, and we have wanted to beat our head 829 00:49:51,280 --> 00:49:54,560 Speaker 1: against a wall, or we have paid fees that seemed 830 00:49:54,880 --> 00:49:59,719 Speaker 1: necessary or outrageous, or we failed to shop. I mean, 831 00:49:59,840 --> 00:50:02,719 Speaker 1: this is something we've talked about on the podcast, and 832 00:50:03,080 --> 00:50:08,239 Speaker 1: that Professor John Campbell highlighted incredibly well mortgages. And this 833 00:50:08,280 --> 00:50:10,799 Speaker 1: is a place where unlike shopping for your pair of shoes, 834 00:50:10,800 --> 00:50:13,759 Speaker 1: where you could save twenty bucks, you're talking about thousands 835 00:50:13,880 --> 00:50:16,239 Speaker 1: or tens of thousands of dollars over the life of 836 00:50:16,280 --> 00:50:20,319 Speaker 1: your loan if you're not shopping around and getting a better, 837 00:50:20,840 --> 00:50:23,520 Speaker 1: potentially better rate from a credit union or through a 838 00:50:23,520 --> 00:50:26,400 Speaker 1: mortgage broker. And we talk about how the average person 839 00:50:27,120 --> 00:50:30,439 Speaker 1: really does just go with the first lender often that 840 00:50:30,480 --> 00:50:33,040 Speaker 1: their real estate agents suggests, but shopping around could save 841 00:50:33,040 --> 00:50:36,759 Speaker 1: you ridiculous amounts of money. And so part of the 842 00:50:36,800 --> 00:50:40,440 Speaker 1: problem here that he's highlighting is that the industry spends 843 00:50:40,480 --> 00:50:43,759 Speaker 1: money is what he said on brand familiarity, which leads 844 00:50:43,800 --> 00:50:47,640 Speaker 1: to stickiness. And so whether that's the bank you do 845 00:50:47,680 --> 00:50:50,279 Speaker 1: business with and just going back to the well, I guess, 846 00:50:50,320 --> 00:50:52,560 Speaker 1: I guess I'll go there for this and such loan 847 00:50:52,600 --> 00:50:55,399 Speaker 1: product or man. One of the worst things we hear 848 00:50:55,920 --> 00:50:58,759 Speaker 1: is when listeners say, all right, I'm going to go 849 00:50:58,800 --> 00:51:02,800 Speaker 1: to my bank to open up my investment account. It's like, no, please, 850 00:51:02,840 --> 00:51:06,840 Speaker 1: don't like they offer that, and maybe you feel somewhat 851 00:51:06,880 --> 00:51:09,480 Speaker 1: comfortable there, but you're going to pay so much more 852 00:51:09,520 --> 00:51:10,960 Speaker 1: in fees than if you were to go with one 853 00:51:10,960 --> 00:51:14,800 Speaker 1: of the low cost brokerage firms. And Professor John he 854 00:51:14,880 --> 00:51:19,040 Speaker 1: highlighted too that you're treated worse if you're loyal, which 855 00:51:19,239 --> 00:51:23,400 Speaker 1: is often the case, and loyalty is such a lovely 856 00:51:25,040 --> 00:51:29,000 Speaker 1: it's such a lovely attribute to have in your relationships, 857 00:51:29,280 --> 00:51:32,400 Speaker 1: in you know, with your spouse, like with your friends, 858 00:51:32,800 --> 00:51:36,880 Speaker 1: but when it comes to your financial institutions, you should 859 00:51:36,880 --> 00:51:39,320 Speaker 1: be a little bit less loyal and you should question 860 00:51:39,480 --> 00:51:43,000 Speaker 1: whether they should have to earn your business continually. That 861 00:51:43,200 --> 00:51:45,200 Speaker 1: is what the free market economy is about. He also 862 00:51:45,280 --> 00:51:48,120 Speaker 1: highlighted just a lot of pitfalls right that we need 863 00:51:48,160 --> 00:51:50,760 Speaker 1: to be aware of. And I would love to see 864 00:51:50,960 --> 00:51:55,720 Speaker 1: personal finance education go into not just the high schools, 865 00:51:55,760 --> 00:51:57,800 Speaker 1: because he talked about the shortcomings there too, and I 866 00:51:57,840 --> 00:52:00,680 Speaker 1: think he's right, but into the place is where we 867 00:52:00,719 --> 00:52:03,600 Speaker 1: are making those decisions, so that we have better information, 868 00:52:03,680 --> 00:52:07,239 Speaker 1: and I would love to see just some reforms made 869 00:52:07,719 --> 00:52:11,520 Speaker 1: to make it a little easier for us to understand. Gosh, 870 00:52:11,560 --> 00:52:16,960 Speaker 1: even when you're just parsing the alphabet soup of retirement accounts, well, 871 00:52:16,960 --> 00:52:19,480 Speaker 1: how much can I contribute to that? And well, my 872 00:52:19,560 --> 00:52:23,080 Speaker 1: income just went slightly above this the amount where I'm 873 00:52:23,120 --> 00:52:25,200 Speaker 1: allowed to contribute to that. What do I do next? 874 00:52:25,239 --> 00:52:29,120 Speaker 1: What's the next best bet for me? And it's incredibly confusing, 875 00:52:29,239 --> 00:52:32,000 Speaker 1: and I think it leads to burnout or just a 876 00:52:32,080 --> 00:52:34,919 Speaker 1: lack of following through for individuals. So if we can 877 00:52:35,040 --> 00:52:38,239 Speaker 1: simplify it, then I think we're just going to get 878 00:52:38,280 --> 00:52:42,160 Speaker 1: more participation and less frustration, and I think that's a 879 00:52:42,160 --> 00:52:45,160 Speaker 1: good thing. So I hope you enjoyed this episode. Personal 880 00:52:45,160 --> 00:52:48,239 Speaker 1: finance ain't perfect, and we'll keep, I guess parsing the 881 00:52:48,280 --> 00:52:52,840 Speaker 1: details that need to be parsed because the system is 882 00:52:52,880 --> 00:52:54,279 Speaker 1: still going to have a lot of messed up things 883 00:52:54,320 --> 00:52:56,680 Speaker 1: in it. Thanks as always for listening. You can find 884 00:52:56,680 --> 00:52:58,360 Speaker 1: the show notes for this episode up on the website 885 00:52:58,400 --> 00:53:02,239 Speaker 1: at howtomoney dot com. Until next time, best Friend Out.