This is a hidden column

getTagNameBigPicture

Turning Savers to Investors: Reasons for the Shift

Key ingredients and false trails in a conversion to an investing culture

Scott Burns

 

In my last post, we took a trip back to the early 1990s to explore the not-so-ripe conditions in the United States for a cultural conversion from savers to investors. Still, this miraculous shift happened. But how?

In a pursuit to try to find an answer and disprove some bad ones, I asked some folks in the industry for their thoughts.

4 theories behind America’s shift to an investing culture

  1. The rise of the 401(k). The “choice” that comes with having to manage your own money is certainly a key ingredient to the shift from savers to investors. Without having this choice, brought about with the rise of defined-contribution plans, we wouldn’t have much of a discussion. But a company match, or just having the money employees contributed, is a bit of a false trail. Thinking back to my grandparents, I’m pretty sure that if you handed them a defined-contribution plan, even with a company match, they would have said, “Thank you very much for my hard-earned money.” Then, they would have headed straight to the bank or a money market fund with it. A 401(k) alone wasn’t going to get them into the markets.
  2. Education. This was probably the most popular answer that I received. Now, some education is essential to what I believe is the real cause. But to consider education as the catalyst that flipped a whole culture seems a little far-fetched. Remember, we are talking about 1991. There is no internet. How exactly did we educate the masses in such a thorough manner that they flipped in a matter of years? In 1991, investors weren’t going to finance seminars. They were working at their jobs, and there wasn’t financial planning like we know today. Sorry, but I don’t think education is the root cause here. Besides, people living in Germany and Japan have been pounded with education for decades. It hasn’t moved them out of the banks one bit.
  3. The market was booming. We already went over this. The market wasn’t booming.
  4. Low yields pushed investors to stocks. Nope. You’re not thinking with your 1991 brain. Interest rates back then were relatively high. The rates weren’t as high as 1981, but inflation wasn’t raging out of control either. Sorry, the answer is not low yields.

There are other possible sources, but these were the most frequently mentioned. I, however, believe the source of this change is a very subtle one and one that investing cultures around the world seem to share.

But you’ll have to wait for my next post to find out.

Join your peers at the world’s leading asset management firms and read our Asset Management Quarterly.

Subscribe Now

The Advisor Toolkit

Get practical behavioral finance tools to help clients avoid common pitfalls.