Transcript: April 5, 2013

MARIA HINOJOSA: Welcome to Need to Know and thanks for joining us. It’s great to be with you. The government has released its latest unemployment figures and the jobless rate last month fell. This was the number of jobs created. Of course, having a job these days does not guarantee an easy life. Wages have been stagnant for more than a decade now, and that makes it difficult for tens of millions of Americans – with work — to get by. But saving money is an even greater challenge. Perhaps that explains why some employers are now helping their workers get loans when an emergency occurs.

It’s not just a favor — but a way to keep a business running. As it turns out, these programs not only keep workers on the job but sometimes change the way they manage their money and their lives. Need to Know’s William Brangham reports from Vermont.

WILLIAM BRANGHAM [narration]: ERIC CREADO IS A YOUNG FATHER WHO LIVES AND WORKS IN NORTHERN VERMONT. HE’S RAISING THREE YOUNG KIDS WITH HIS GIRLFRIEND. ERIC SAYS MONEY’S OFTEN TIGHT, BUT BOTH THEIR JOBS COVERED MOST OF THEIR EXPENSES… THAT IS, UNTIL HIS GIRLFRIEND GOT LAID OFF LAST YEAR.

ERIC CREADO: I was getting worried about you know, bills comin’ around, you know, first of the month and everything else.

WILLIAM BRANGHAM [narration]: THEY DIDN’T HAVE ANY FAMILY OR FRIENDS WHO COULD HELP THEM OUT FINANCIALLY…. SO THEY WERE STUCK.

ERIC CREADO: Gettin’ discouraged, you know, whether I’m gonna manage to pay all my bills. cause when one person’s working in the house supporting everything, it’s kinda overwhelming,

WILLIAM BRANGHAM [narration]: ERIC WORKS AT A COMPANY CALLED RHINO FOODS IN BURLINGTON. THEY MAKE THE FROZEN COOKIE DOUGH THAT GETS MIXED INTO DIFFERENT BRANDS OF ICE CREAM, LIKE DRYERS AND BEN AND JERRY’S. HE HELPS MANAGE THE BATTER-MAKING AT THE PLANT.

COMPANIES LIKE RHINO SAY THAT WHEN EMPLOYEES LIKE ERIC ARE IN FINANCIAL STRAITS… IT’S BAD NOT JUST FOR THE WORKERS… IT’S BAD FOR THE COMPANY TOO.

TED CASTLE IS THE C.E.O. OF RHINO FOODS

TED CASTLE: If you ask supervisors in most manufacturing environments how often they have to talk about absenteeism and difficulties about getting to work or emergencies, it’s a large amount of time. They have situations that really can cause them to spiral, and sometimes, out of control and lose their jobs. And quite frankly they might be some of our best employees.

WILLIAM BRANGHAM [narration]: AS IT TURNS OUT, THIS ISN’T UNIQUE TO RHINO FOODS. A FEW YEARS AGO, WHEN A BUNCH OF DIFFERENT VERMONT EMPLOYERS WERE BROUGHT TOGETHER BY THE UNITED WAY TO TALK ABOUT HOW TO ADDRESS POVERTY IN THEIR STATE – THEY ALL HAD SIMILAR STORIES:

LISA FALCONE: The conversations were really about employers, HR folks, being very confused when really good employees all of a sudden would get derailed at the workplace.

WILLIAM BRANGHAM [narration]: LISA FALCONE WORKS FOR THE UNITED WAY OF CHITTENDEN COUNTY IN NORTHERN VERMONT. SHE SAYS THESE COMPANIES WERE SEEING SMALL CRISES CAUSE THEIR LOWER-WAGE EMPLOYEES TO MISS WORK, OR REPEATEDLY SHOW UP LATE… AND THE COMPANIES DIDN’T HAVE POLICIES TO DEAL WITH IT.

LISA FALCONE: HR folks weren’t used to making the decision about, “Oh, let’s see what the problem is,” versus, you know, “We have a policy. You’re late three times, you’re fired” sort of thing.

WILLIAM BRANGHAM [narration]: SO THE UNITED WAY AND THOSE EMPLOYERS – WHICH INCLUDED BIG NATIONAL FIRMS LIKE GREEN MOUNTAIN COFFEE… FLETCHER-ALLEN, THE BIGGEST HOSPITAL SYSTEM IN VERMONT… DOWN TO SMALLER FIRMS LIKE RHINO FOODS, AND LOCAL CONSTRUCTION COMPANIES …. THEY CREATED A PROGRAM CALLED “WORKING BRIDGES” TO TRY AND HELP THOSE STRUGGLING EMPLOYEES STAY AT THEIR JOBS. STEP ONE WAS HIRING THIS WOMAN.

LISA JENSEN: I help people solve problems.

WILLIAM BRANGHAM [narration]: LISA JENSEN WORKS FOR THE UNITED WAY, BUT SHE’S ALMOST NEVER THERE. INSTEAD, SHE SHUTTLES AMONG DIFFERENT COMPANIES, PARKING HERSELF RIGHT IN THE MIDST OF THE EMPLOYEES SHE’S TRYING TO HELP. HER OFFICIAL TITLE IS “RESOURCE COORDINATOR” – BUT SHE’S MORE OF A HYBRID SOCIAL WORKER AND FINANCIAL COUNSELOR:

LISA JENSEN: So I’m there– the main role of the resource coordinator is to be available to employees when they have a barrier that has come up that’s getting in the way of work, whether it be financial stress or childcare or transportation.

WILLIAM BRANGHAM [narration]: LISA CONNECTS THEM WITH DIFFERENT KINDS OF ASSISTANCE – EVERYTHING FROM FINDING LOW-COST CHILD CARE, TO GETTING STATE GRANTS TO HELP WITH HEATING BILLS IN WINTER. BUT THE CENTERPIECE OF THE ‘WORKING BRIDGES’ PROGRAM IS CALLED THE ‘INCOME ADVANCE LOAN’

LISA JENSEN: It’s a loan that is available to an employee, no questions asked, no credit check. When life happens, whether a car is breaking down or perhaps there is a loss of income in the household, they’re in need of a loan, an advance.

LISA FALCONE: We were trying to avoid workers having to go to what we call predatory lending places. We didn’t want them to get in worse financial shape.

WILLIAM BRANGHAM: So they come in, and they need to get this loan. Does this take a week for money to come? How long does this take?

LISA JENSEN: It can be that afternoon. If somebody comes in the morning, it can be that afternoon.

WILLIAM BRANGHAM: That they get the money?

LISA JENSEN: Correct. It’s a very short process.

WILLIAM BRANGHAM [narration]: THE EMPLOYERS MAKE ARRANGEMENTS WITH LOCAL CREDIT UNIONS IN VERMONT WHO ACTUALLY HANDLE THE LOANS, WHICH CAN RANGE ANYWHERE FROM ABOUT $200 TO ABOUT $1000 DOLLARS. YOU’RE ONLY ALLOWED TO TAKE OUT ONE LOAN AT A TIME, AND THE EMPLOYEES PAY THE LOAN BACK BY HAVING A SMALL AMOUNT OF MONEY AUTOMATICALLY DEDUCTED FROM THEIR PAYCHECK.

THE CREDIT UNIONS CHARGE ROUGHLY 17% INTEREST ON THE LOANS. THAT’S HIGHER THAN LOANS GIVEN TO PEOPLE WITH BETTER CREDIT, BUT CONSIDERABLY LESS THAN THE SKY-HIGH RATES OFFERED BY MANY OTHER SHORT-TERM LENDERS.

WITHIN RHINO FOODS, THESE LOANS HAVE PROVEN TO BE INCREDIBLY POPULAR. WHILE WORKERS EARN ANYWHERE FROM $12 TO $16 AN HOUR WITH FULL BENEFITS, AND NEARLY HALF OF THE EMPLOYEES HAVE TAKE THESE SHORT-TERM LOANS SINCE THE PROGRAM BEGAN IN 2007.

TED CASTLE: I’ve thought the fact that we’re now just– facilitating helping people borrow money and be in debt. And that’s a hard thing to rationalize, is that okay? But I’ve seen all the benefits from it.

WILLIAM BRANGHAM [narration]: ERIC CREADO TOOK OUT A LOAN TO HELP PAY HIS BILLS UNTIL HIS GIRLFRIEND GOT A NEW JOB.

ERIC CREADO: When they brought this to my attention, I was just ecstatic, you know. I think it’s a beautiful thing for people in the middle class that are struggling, you know, to have that, you know, security that security blanket, it’s a good thing.

WILLIAM BRANGHAM [narration]: WE TALKED WITH SEVERAL OTHER EMPLOYEES AT RHINO WHO TOOK OUT LOANS, AND THEY USED THEM FOR A VARIETY OF REASONS: CRYSTAL PERRAULT, WHO WORKS IN SALES, TOOK A LOAN TO PAY BILLS LAST CHRISTMAS. SHE’S HOPING PAYING OFF HER LOAN WILL HELP IMPROVE HER CREDIT SO SHE AND HER DAUGHTER CAN LEAVE THEIR ROOM-MATES AND GET THEIR OWN HOME.

CRYSTAL PERRAULT: Long term goal is to buy a house – that’s my main goal — to have a house for me and my daughter – a room she can like paint her own bedroom and do whatever she wants with.

WILLIAM BRANGHAM [narration]: MYRON BULLOCK WORKS IN SHIPPING, AND HE TOOK OUT A LOAN TO PAY DOWN SOME OF HIS COLLEGE LOAN DEBT.

MYRON BULLOCK: Once I heard her proposal, I took the loan and it helped me out tremendously.

WILLIAM BRANGHAM [narration]: PAUL PHILLIPS HAS WORKED AT RHINO FOR EIGHTEEN YEARS… HE MANAGES THEIR DISTRIBUTION CENTERS. HE TOOK OUT HIS FIRST LOAN TO FIX PART OF HIS HOUSE. BEFORE THIS PROGRAM, PAUL HAD NEVER HAD A BANK ACCOUNT – HE PAID CASH FOR EVERYTHING IN HIS LIFE – AND HIS CREDIT WAS NON-EXISTENT. BUT AFTER REPAYING HIS LOANS –AT 57 YEARS OF AGE – HE QUALIFIED FOR HIS FIRST EVER CAR LOAN:

PAUL PHILLIPS: I knew very little about credit. I never had a credit card. And I never owned a new car. So it was a pleasant surprise to go and buy a new car at my age for the first time in my life.

LISA JENSEN: I remember the day that he came to work, and he had a huge smile on his face. And “You have to come out and see my new car.” I was thrilled for him. I was thrilled for him.

PAUL PHILLIPS: If I didn’t have proper transportation, I probably would not be able to work here. And that is good for the company, I think. At least I hope they– I hope they think so. And it’s certainly good for me and my family.

WILLIAM BRANGHAM [narration]: WHEN THE WORKING BRIDGES PROGRAM FIRST STARTED, LISA JENSEN’S SALARY WAS PAID BY THE UNITED WAY… BUT AFTER A FEW YEARS, THE SIX DIFFERENT COMPANIES SHE VISITS DECIDED TO PICK UP HER ENTIRE SALARY.

WILLIAM BRANGHAM: Why do you think this is important to spend some of what might be scarce resources for you, for your company, on something like this?

TED CASTLE: We choose to do this because we actually can provide data that would show it’s worth the money we spend on it. We can show the results of that in retention, to people not showing up late to work. Those are probably the two obvious things. And then maybe the soft side is, you know, almost every business has a plaque on their wall saying, “Our employees are our most valuable asset.” Well, if your employees are your most valuable asset, wouldn’t you wanna try to figure out how to help them in short-term emergencies?

WILLIAM BRANGHAM [narration]: BUT HERE’S WHERE THE PROGRAM REALLY GETS INTERESTING. THESE LOANS HAVE PROVEN TO BE A QUICK FIX FOR IMMEDIATE NEEDS. YOU GET YOUR MONEY UPFRONT, AND THEN YOU PAY IT OFF WITH AN AUTOMATIC DEDUCTION OUT OF YOUR PAYCHECK. BUT ONCE THE LOAN IS PAID IN FULL, THOSE DEDUCTIONS DON’T STOP: INSTEAD, THEY’RE NOW DIVERTED INTO A SAVINGS ACCOUNT. YOU CAN OPT-OUT OF THAT IF YOU WANT, BUT MOST PEOPLE DON’T… AS A RESULT, A MAJORITY OF PEOPLE ARE NOW NOT ONLY IMPROVING THEIR CREDIT, BUT NOW, THEY’RE SAVING MONEY.

LISA FALCONE: Most employees, what we found through our evaluations, have decided, “Hey, this wasn’t so hard. I’m gonna continue to have that $50 come out so that I now have a savings account that I’m building and feel pretty good about that.

WILLIAM BRANGHAM [narration]: AT RHINO FOODS, PAUL PHILLIPS – THE MAN WHO DIDN’T EVEN HAVE A BANK ACCOUNT FOR 20 YEARS HAS STARTED SOCKING AWAY MONEY….

PAUL PHILLIPS: It’s a big, big deal for me. It was a big, big deal for me. Still is.

WILLIAM BRANGHAM [narration]: SAME THING WITH ERIC CREADO – HIS GIRLFRIEND GOT A NEW JOB, HIS LOANS ARE PAID OFF, AND HE’S NOW PUTTING $50 EVERY WEEK INTO A SAVINGS ACCOUNT:

WILLIAM BRANGHAM: Was it hard for you to get used to not having that extra $50 in your check every week?

ERIC CREADO: It was, for the first couple of months, so you just try not to think about it, you know, ’cause the more you think about it then you’re gonna wanna take that money, you know. So, my– the thing I do is I just don’t even pay no mind. I don’t– I don’t think about that fifty dollars or one hundred dollars that’s comin’ outta my check.

WILLIAM BRANGHAM: What fifty dollars?

ERIC CREADO: Exactly.

WILLIAM BRANGHAM [narration]: SO HERE’S THE QUESTION: THESE EMPLOYEES COULD’VE ALL STARTED THEIR OWN SAVINGS ACCOUNT BEFORE THE LOAN PROGRAM EXISTED, BUT THEY DIDN’T. SO WHY IS THIS HAPPENING NOW?

THERE’S A FIELD OF SOCIAL SCIENCE CALLED BEHAVIORAL ECONOMICS. IT STUDIES WHY PEOPLE DO THE THINGS THEY DO WITH THEIR FINANCES. RESEARCH HAS SHOWN THAT MAKING A CERTAIN BEHAVIOR THE DEFAULT POSITION, LIKE DIVERTING A SMALL BIT OF YOUR PAYCHECK INTO A SAVINGS ACCOUNT, IS THE BEST WAY TO GET PEOPLE TO DO THAT BEHAVIOR. IT’S FAR BETTER THAN JUST ENCOURAGING THEM TO DO IT.

AND THIS PRACTICE WORKS FOR THINGS BEYOND JUST SAVING MONEY…. FOR EXAMPLE: SEVERAL EUROPEAN COUNTRIES MADE BECOMING AN ORGAN DONOR THE DEFAULT POSITION WHEN YOU GOT A DRIVERS LICENSE. YOU COULD OPT-OUT OF IT IF YOU WANTED TO. BUT WITH JUST THAT SIMPLE CHANGE, ORGAN DONATION RATES WENT THROUGH THE ROOF IN THOSE PARTICULAR COUNTRIES.

WILLIAM BRANGHAM: Did you all study behavioral economics?

LISA FALCONE: I would say that we definitely intended that if we build it this way, we may see change in behavior

WILLIAM BRANGHAM: So the function of the loan, the deduction from their paycheck not switching off, that’s by design?

LISA FALCONE: That’s by design.

WILLIAM BRANGHAM: It just seems such an unusual chain of events where a financial emergency causes you to take out a very quick loan, and in the process of really going into further debt, seems to have the opposite effect, in the long run, of building savings?

LISA JENSEN: Right. I think it’s easy. I think that it’s an easy way and an automatic way to force the behavior change. And there’s something about having to opt-out. They’re– they–

WILLIAM BRANGHAM: Meaning I have to say to the credit union, “Stop taking the money out?”

LISA JENSEN: Correct. That’s right. That’s right.

WILLIAM BRANGHAM: And you think it’s in that opt-out process—

LISA JENSEN: I do.

WILLIAM BRANGHAM: –that people just start doing the right thing?

LISA JENSEN: I do.

WILLIAM BRANGHAM: What are your savings up to now?

ERIC CREADO: Right now I’m ’bout 15– $1500.

WILLIAM BRANGHAM: That’s great.

ERIC CREADO: So yeah, I mean, it’s good. I’m happy, you know. And as far as I’m, like, way ahead of the game, you know, as far as bills and everything else goes. So, I think after this year I should be at a nice number. I’m not exactly sure, but I should be well off.

WILLIAM BRANGHAM: Congratulations.

ERIC CREADO: Thank you.

MARIA HINOJOSA: April 15th is just around the corner, and millions of us are scrambling to get our taxes paid. But tax season also offers a unique opportunity for some low-income Americans, who get refunds, to save. Can they? Will they? Well, New York Mayor Michael Bloomberg has devised a plan to get them to set some money aside … And he’s offering them more than encouraging words. Need to Know’s Brian Epstein reports.

VIDEO: Tax season’s approaching again but did you also file…

BRIAN EPSTEIN [narration]: NOBODY LOVES TAX SEASON … BUT ONE THING WE DO LOOK FORWARD TO IS A TAX REFUND.

VIDEO: He did his taxes at Jackson Hewitt and just found out how much he’ll be getting back this year.

BRIAN EPSTEIN [narration]: GETTING ONE MEANS YOU PAID TOO MUCH TO THE GOVERNMENT OVER THE YEAR, BUT THE REFUND STILL FEELS LIKE A BONUS ANYWAY… SO PEOPLE TEND USE THAT EXTRA CASH TO BUY A NEW OUTFIT, SNEAKERS FOR THE KIDS, OR THAT FLAT SCREEN TV THEY’VE BEEN EYEING…

BUT AT THIS FOODBANK IN THE BRONX WHERE FREE TAX SERVICES ARE OFFERED TO LOW INCOME FAMILIES, THEY ARE TRYING TO BREAK THAT SPENDING HABIT.

AGENT: You have this great chance to save.

BRIAN EPSTEIN [narration]: THESE TAX PREPARERS ARE PROMOTING “SAVE USA” A PROGRAM CREATED BY MAYOR MICHAEL BLOOMBERG AND FUNDED WITH FEDERAL, STATE, AND PRIVATE DOLLARS. THE IDEA: TO GET LOW INCOME NEW YORKERS TO PUT THAT TAX REFUND IN A SAVINGS ACCOUNT INSTEAD OF SPENDING IT RIGHT AWAY. AND THERE’S MORE.

FOR EVERY DOLLAR THEY SAVE, UP TO A THOUSAND, THEY WILL RECEIVE AN EXTRA 50 CENTS. ALL THEY HAVE TO DO IS KEEP THAT MONEY IN A SAVINGS ACCOUNT FOR A FULL YEAR AND PARTICIPANTS CAN GET AS MUCH AS $500 DOLLARS EXTRA IN THEIR POCKETS.

LINDA GIBBS: Let’s create an incentive, a reward for individuals that if they are able to squirrel away a little bit of money that they would actually get a bonus payment– just to get them started, just to get them in the practice of starting to save that little bit of money.

BRIAN EPSTEIN [narration]: LINDA GIBBS IS NEW YORK CITY’S DEPUTY MAYOR FOR HEALTH AND HUMAN SERVICES. GIBBS SAYS THAT MAYOR BLOOMBERG WAS INTENT ON BREAKING THE CYCLE OF POVERTY FOR THE WORKING POOR AND CAME TO BELIEVE THAT SAVINGS WERE KEY.

BRIAN EPSTEIN: Why give money to people just to save? Shouldn’t they be doing this on their own?

LINDA GIBBS: Sure. There’s plenty of things that we wish people would do just on their own.

Think about it. A young family– with a very low income, living below the poverty line. You need a little incentive to take some of the dollars out of your pocket today and put it into a savings account. Maybe, you know, the most rational thought is that in the long term, you’ll be better off. But right now, you know, I’d like to buy a little extra meat for dinner, rather than to just have pasta and– and– and– and vegetables, right? And so– you know, that tradeoff for the long term for the short term, it’s a very, very tough choice if you’re a very low income family.

BRIAN EPSTEIN: Were there times over the course of the last year where you where it would have been nice to dip into that?

EVELYN DOMINGUEZ: Yes.

BRIAN EPSTEIN [narration]: EVELYN DOMINGUEZ IS A SINGLE MOM WITH TWO KIDS WHO MAKES ABOUT $11,000 A YEAR. LAST YEAR SHE ENROLLED IN SAVE USA AND PUT $1000 FROM HER EARNED INCOME TAX CREDIT INTO A SAVINGS ACCOUNT… IF SHE SUCCESSFULLY SAVED THAT FOR A YEAR, SHE’D GET A $500 BONUS.

EVELYN DOMINGUEZ: It was, like, very tough. So I struggle, but I– I made it. It– it m– it gives you, like, a– I was saying. Like, when you want it, like a little kid in the cookie jar. You wanna put your m– hand in it. But you don’t– you don’t want to. You said, “No, let me keep it there. Let me leave it there.”

BRIAN EPSTEIN [ narration]: CHRISTMAS TIME WAS PARTICULARLY TOUGH BECAUSE SHE WANTED TO BUY PRESENTS FOR HER FAMILY.. BUT SHE KEPT HER EYE ON THE PRIZE.. AND GOT THAT $500 DOLLARS. NOW SHE’S TELLING EVERYONE SHE KNOWS TO SIGN UP TOO. BUT NOT EVERYONE BUYS INTO IT.

MAN: Not really but you know.

AGENT: You don’t lose anything by trying but I understand if you don’t want to try.

MAN: No

AGENT: You should give it a try.

MAN: No

AGENT: Ok. Thank you sir.

BRIAN EPSTEIN: So why do you think most people were, like, “Nah, no way.”

EVELYN DOMINGUEZ: ‘Cause they’re saying, “Why are they giving us this extra money? You know, why?”

BRIAN EPSTEIN: It was sort of, like, too good to be true?

EVELYN DOMINGUEZ: Yes. It’s too good. Yeah. That’s the word. Too good to be true. But it is true, though. And it does work.

BRIAN EPSTEIN [narration]: LAST YEAR SEVENTY PERCENT OF PARTICIPANTS SUCCEEDED IN SAVING FOR THE YEAR AND EARNED THEIR CASH BONUS. THE PROGRAM HAS NOW EXPANDED TO NEWARK, NEW JERSEY, TUSLA, OKLAHOMA, AND SAN ANTONIO, TEXAS. THERE IS A LIMITED POOL OF MONEY FOR THE PROGRAM SO ENROLLMENT IS BY LOTTERY.

STILL, CRITICS MAY SEE THIS PROGRAM AS YET ANOTHER WAY THAT MAYOR BLOOMBERG IS CREATING A “NANNY STATE”.

BRIAN EPSTEIN: He’s tellin’ people to drink less soda, save money. Is this appropriate for an elected official to sort of– sort of dictate how to live your life to his– his constituents?

LINDA GIBBS: Well– the mayor has always been focused on from the day he started the job, and I am entirely sure it’s gonna be until the day he leaves, is how can I use my time today in this office to make New York a better place for the citizens of New York. And so if there’s a rational basis that something might work, and there’s a good chance that you can improve people’s lives, he’ll be willing to do it, even though– he will understand that there’ll be plenty of people who will criticize him for doing some things.

BRIAN EPSTEIN [ narration]: AND HERE IN THE BRONX, THAT’S SOMETHING WORTH CELEBRATING..

AGENT: We’ve got another SaveUSA!

MARIA HINOJOSA [narration]: THIS WEEK ONLINE…TAKE PART IN OUR WEEKLY POLL. THE TOPIC: GETTING PAID TO SAVE MONEY. ALSO, Find out how ONE OF Vermont’s biggest employerS helped employees turn financial crises into lifetime savings habits.  VISIT PBS.ORG/NEED TO KNOW.

MARIA HINOJOSA: We turn now to American Voices our recurring segment that provides a unique perspective on issues of the day. In this installment, Dan Ariely, Professor of Psychology and Behavioral Economics at Duke University, talks about why saving money is so difficult for many people and how simple changes in policy can make it easier to do.

DAN ARIELY: One of the biggest lessons in social science over the last 40 years is that we are creatures of our environment. So the decisions we make are actually an outcome of the environment we’re being placed in. And if the environment tempts us, for example, think about every morning you come to your office, and your desk is covered with doughnuts. That’s not going to have a good– effect on you.

Saving money is probably one of the toughest things that people can– can do. And– and the re– there are two reasons for that. Is– the first one is between now and later. And here’s a general way to think about this trade-off. Imagine I ask you, “What would you rather have– a half a box of chocolate right now, or a full box of chocolate in a week?” Most people said half a box of chocolate right now, full in a week– give me the half now. But imagine we push the choice to the future. And we said, “What would you rather have: half of box of chocolate in a year, or a full box of chocolate in a year and a week?” It’s the same trade-off. It’s asking you whether you’re willing to wait another week for another half a box of chocolate. But now, most people say, “I’ll wait another week for another half a box of chocolate.”

The second problem with money is that money is abstract. In fact, money is incredibly difficult to think about. Every time you think about a cup of coffee, you should be thinking about, “What am I giving up for this cup of coffee?” But that’s a very hard computation, right? What– what exactly are you giving up?

So it’s now versus later, concrete versus abstract. And because of that, it’s incredibly hard for us to save for long term. It’s incredibly hard for us to think about the value of money at retirement. And it’s difficult for everybody. So what do we do when something is so difficult for us to do naturally? One approach you say educate people. Give people all the information, teach them about how to compute– compound interest and the value of money, and so on. Turns out there’s no evidence that this is working. Instead what we need to do is we need to re-engineer people’s environments so it’s easy to save and you don’t have to think about it.

I think that the best example of a public policy that has been informed by social science is the default of opting out from retirement savings. So it used to be that you came to a company and you started working and they said, “Would you like to save for retirement in a 401(k) plan?” And you said yes or no and how much. Now they said, “You’re in the program. Do you want to get out?” And that has been a very successful plan because of what we call opt in and opt out that going into a program we need effort, decisions, and so on. So we’re less likely to do it. But if we’re in the program already by default, coming out requires effort and attention and so on. So we’re less likely to do it and we’re likely to keep with the plan.

So what we need to do is we need to think carefully about the environment and we need to design an environment that is compatible with the way we process information. We really need to think about what we’re capable and not capable. And we need to design the environment that is tailored to our capabilities and not over-assuming that we can compute something that we really can’t.

MARIA HINOJOSA: That’s it for this edition of Need to Know. For more, including our weekly poll, please visit pbs.org/need to know. On our next broadcast, are American factory jobs on the rebound?

CHRIS RENN: Just in northwestern Ohio alone, over the next seven years it’s estimated there’s gonna be 59,000 job openings in manufacturing.

MARIA HINOJOSA: Main Street, Findlay, Ohio on the next Need to Know. I’m Maria Hinojosa. Thanks for watching.

 

 
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Comments

  • http://www.facebook.com/people/David-Auner/100002042338402 David Auner

    A better story is the Calif. group shaming/forcing banks to serve low income residents. Secured loans at 17% – what a deal for the lenders. Predatory lenders are worse and are headed for some really ugly times (personally) when the economy unwinds – I would not want to be involved in predatory loans in any way. The tailor may again rule.

  • Tamara Sanders

    This sounds more like usary to me. 17% is not a good deal. Working people should be paid enough that they can pay their bills. How much is the company president making? What if the employee can’t pay their normal bills without the money that is being deducted to pay off the emergency loan? I see too much interference of employers with their employees’ lives. It harks back to the days of the nobility managed estates and the serfs whose entire lives were controlled by them. Not what this country was founded to be like.