Behavioral Finance: Here's Why Saving Seems So Difficult

June 10, 2015

Why do so many employees leave their contributions in a plan’s default fund rather than set up a more favorable asset allocation? Why would a retirement plan participant with a long time horizon corral their contributions in an overly conservative fund? Why are participation rates not higher in retirement plans even when employers offer a match? These and many other questions are the subject of behavioral finance, a growing academic field that brings psychology and economics together to address impediments to sound financial behavior. The field of behavioral finance seeks to understand human behavior around financial decisions in order to develop solutions that work in concert with our natural tendencies.