Control: conventional wisdom says you need to “give some up to get some.” Social media is fueled by this logic. So are open-source product and information platforms.
Historically, most financial services companies offered “peace of mind” in exchange for “control.” Individuals and companies outsourced their investment, insurance and risk management decisions to financial organizations who managed them on their customers’ behalf. Today, a growing number of financial companies (e.g., 401(k) providers, insurers, banks, credit card companies) are offering a “give up some control to get some” proposition – i.e., they are embracing what policymakers call “soft paternalism.”
Rooted in behavioral economics, soft paternalism posits that people are most likely to act on their best intentions if they are guided by certain constraints (e.g., a smart default option). This idea has met with strong success in the asset management community where automatic enrollment in pension and 401(k) plans is on the rise, as are retirement savings.
Last week, MasterCard added a new chapter to the soft paternalism story when it announced the launch of credit/debit cards that cut consumers off when they disregard their own monthly budgets. These new cards, called inControl, are designed to protect consumers both from thieves – and from themselves. Ron Lieber of the New York Times calls them a “sort of financial chastity belt that offers the potential to prevent a variety of budget sins and other money traps.”
InControl is just one example of how the financial sector is reframing our definition of “control.” Give up some to get some. Set limits to make smart choices.
Do you think constraints are necessary for smart financial decision-making? What choices are you willing to give up to stay “in control?”