I agree with Ms. Smith that what we want is for people to be numerate, first and foremost.
I will be going to Washington in 15 minutes, and we are having a conference this week on financial literacy and financial education. I'm something of a skeptic on this, in that the literature on behavioural economics, which has become very fashionable these days and deals with how people make decisions in that area, demonstrates that even people who are fully informed and fully financially educated actually make all the wrong choices. There's a whole long list of things with technical names like “myopic loss aversion”, and so on, that suggests people actually do not make rational financial choices.
I've been working on pensions for 20 years now, but I do not really want to make active investment decisions, and so on; I want someone else to deal with that for me.
I think a great deal of attention needs to be paid to the defaults, because most people are going to end up in whatever the default is. It may be the default contribution rate or the default investment strategy, and so on, and we need to make sure those are very sensible, because in many countries they are not. For example, in Australia two-thirds of the people go with the default investment option offered by their private pension provider. All of those are simply one-size-fits-all; it's the same investment strategy for everybody. It's about 60% in equities and 40% in bonds. Now 60% in equities, for me, is rather too risky for people who are close to retirement, but not risky enough for people who are younger, because you are sacrificing some of the return.
It seems to me that we should have a life cycle investment strategy as a default investment strategy, and that somehow people should be guided towards that. The idea that we can turn everyone into being their own financial planners is a bit of a--