Anne Lester: You’re Bad at Savings and It’s Not Your Fault

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Our guest on the podcast today is Anne Lester. She’s author of a new book called Your Best Financial Life: Save Smart Now for the Future You Want. Before writing the book, Anne spent 20 years as head of retirement solutions for J.P. Morgan. With AARP, she co-founded The Aspen Leadership Forum on Retirement Savings. In 2020, Anne was recognized for her extraordinary lifetime contributions to Americans’ economic security with the Ray Lillywhite Award. She earned a master’s in international economics and Japan studies from Johns Hopkins University and a B.A. from Princeton. She was also awarded a Fulbright Graduate Research Fellowship.

Background

Bio

Your Best Financial Life: Save Smart Now for the Future You Want, by Anne Lester

Millennials, Money, and Investing

“Don’t Make These 6 Money Mistakes in Your 30s, Says Former JPMorgan Retirement Expert,” by Anne Lester, cnbc.com, Jan. 4, 2022.

“Fake Rich? Affluent Millennials Are More Likely to Exaggerate to Appear Wealthy. Here’s What Experts Say They Should Do Instead,” by Lorie Konish, cnbc.com, Jan. 25, 2024.

“A Spender’s Guide to Surviving Financial Mistakes With Anne Lester,” Earn & Invest podcast, earnandinvest.com.

“The Worst Money Advice on the Internet,” by Stephanie Hallett, businessinsider.com, June 2, 2022.

“Setting Aside $20 a Day Could Help You Save $1 Million for Retirement —If You Start Early,” by Cheyenne DeVon, cnbc.com, Jan. 5, 2024.

Target-Date Funds and Retirement Savings System

“Retirement Experts Identify Possible Fixes to the Retirement Savings Gap,” by Paul Mulholland, planadviser.com, Oct. 3, 2022.

“Quit Your Job? Here’s What to Do With Your 401(k),” by Jeanne Sahadi, cnn.com, Jan. 6, 2022.

“Ladies, How Much Is Really Enough for Retirement?” hermoney.com, June 23, 2022.

Other

“Brigitte Madrian: ‘Inertia Can Actually Be a Helpful Thing,’” The Long View podcast, Morningstar.com, April 22, 2020.

Transcript

(Please stay tuned for important disclosure information at the conclusion of this episode.)

Christine Benz: Hi, and welcome to The Long View. I’m Christine Benz, director of personal finance and retirement planning for Morningstar.

Amy Arnott: And I’m Amy Arnott, portfolio strategist for Morningstar Research Services.

Benz: Our guest on the podcast today is Anne Lester. She’s author of a new book called Your Best Financial Life: Save Smart Now for the Future You Want. Before writing the book, Anne spent 20 years as head of retirement solutions for J.P. Morgan. With AARP, she co-founded The Aspen Leadership Forum on Retirement Savings. In 2020, Anne was recognized for her extraordinary lifetime contributions to Americans’ economic security with the Ray Lillywhite Award. She earned a master’s in international economics and Japan studies from Johns Hopkins University and a B.A. from Princeton. She was also awarded a Fulbright Graduate Research Fellowship.

Anne, welcome to The Long View.

Anne Lester: Well, thank you so much for having me.

Benz: Well, we’re excited to have you here and congratulations on the book, Your Best Financial Life. Maybe you can talk about your motivation for writing the book.

Lester: Thanks so much. I think there were a couple of different things motivating me. I guess for starters, I’ve always wanted to write a book and in fact have an unpublished novel I wrote in my 20s and 30s in the bottom of a desk drawer somewhere. So, it’s been a lifelong ambition. I guess I listened to the “write what you know” advice. So, I certainly know this topic pretty well. And I know it from several different perspectives. One, obviously as an investment professional who spent 20-plus years focusing on how to build investment products for people to help them save for retirement. But also from a very personal perspective, I found a lot of what I was learning about is I really dove into the defined-contribution system very personal because I was a textbook example of all of the mistakes people make when they’re trying to save themselves— maybe not so much on the investing side, but certainly on the saving side. So I think I’m writing this book maybe for my younger self, but also very much for my children and for frankly, everybody I talked to along the way, working on this book who really is struggling often to overcome not just the realities of saving, which are challenging, but also their own personal feelings of maybe shame and fear and the little voice in their head that says, you should do a better job at this. So that’s why I wrote the book.

Arnott: So, I think you partially answered our next question, which is why did you focus your book on a younger audience, mainly millennials and Gen Z versus people who are getting ready to retire or already retired, for example.

Lester: Again, there are multiple reasons, but a big one is—and I don’t mean this to discourage anybody who is older—but if you’re in your 50s or 60s and have not started saving yet, it’s a really different conversation than it is with a 30-year-old who hasn’t started saving yet. And so, part of it is just—I don’t want to say easy because none of this is easy—but it’s a less challenging, maybe less sacrificial conversation when you’re younger because you do have time. And time is your friend when you’re in your 20s and 30s. When you’re in your 50s and 60s, time is, from an investing perspective, certainly much less of a friend. And so, I think that’s one of the reasons. The other reason is, again with children this age, I hear and see so much—I don’t know, nihilism or fear or “we’ll never be able to do it.” And I just don’t think that’s true. So, another one was really trying to dispel that fear.

Benz: It seems like a lot of people have tried to crack this nut with books and websites, trying to help younger people with their financial wellness. And I’m wondering if you can think about what you view as your “secret sauce” or what are you trying to do differently than other entities that have tried to address the same audience and the same general topic?

Lester: Well, clearly, we’re not getting it right because I don’t think the savings rates—the proof is in the pudding and it’s not all that great. And as you say, there are many, many, many books out there like this. I think I’m trying to do two things that are maybe a little different. The first is, approach it—it’s basically integrating the behavioral, the why with the how. And I think there are lots of books on the why and a lot of books that take a deep dive into the behavioral economics and the importance of it for personal finance. But I don’t know that many books have successfully integrated the why of the wiring and the how you do it as explicitly as I’ve done. So that’s one big differentiator.

The second big differentiator is I think—and I am one of them—financial-services professionals tend to get stuck in jargon. I think we assume that this stuff is interesting. And I think most people don’t find it the least little bit interesting. They just want it all to go away, and I think they can, without intending to, sound condescending. And so, I really tried very hard to sound approachable, relatable, human, not to use jargon, but also, and I think there are plenty of great books that have come out very recently aimed at this demographic written by people this age, I think those books are a, “Hey, I’ve done it all right and I can teach you to do it, too.” I’m taking kind of a different approach, which was, “Wow, I made every mistake you made, and I’ve learned a lot. And let me share that with you from the perspective of someone who has made the mistakes and learned, but also from the perspective of someone who spent 30 years as a professional investor.” And so, I think that’s a bit differentiated as well.

Arnott: What are some of the key areas where you depart from the conventional wisdom about how this group of younger investors should be managing their finances?

Lester: I think at a high level, I am trying very hard to make sure that people don’t feel—I don’t want to say don’t feel responsibility, because clearly, we’re responsible for what we do—but don’t feel like it’s their fault. So, one of my chapters is called, “You Suck at Savings and It’s Not Your Fault.” And I actually mean that. Surely, you are the one spending the money, so you are actually spending the money, and we can’t pretend that you’re not doing it. But at the same time, I think unlocking the appreciation and the understanding of the why. Why are you spending like this? What is causing you to spend like this? And I think there is an argument to be made that— and I know there’s a new field of financial therapists that I think are very helpful in this context—but while I think everybody should spend years plumbing the depths of the why’s on a very personal and human level, I think there are also some great shortcuts you can take that let you hack your way around some of the triggers that may cause overspending or make it difficult to start investing. And you can do that first and then you can take the time to really go deep on the why for your own personal sense of knowledge and control. But I think accepting that you may be wired a certain way is certainly one way to get out of this frozen shame/blame place that I think a lot of people are in. I heard so many people say to me, “I just don’t know what to do. I’m afraid of doing it wrong. This is really confusing. It will never work for me.” Those are all stories that loop through people’s heads that stop them from taking action.

Benz: We want to delve into some of the things that you just referenced, Anne. But first, you have two sons who are in the same age cohort as your intended audience. I’m wondering, did they influence how you approach the subject matter in the book and perhaps why you wanted to write a book geared toward this audience in the first place?

Lester: Oh, very much so. I think I say it in the acknowledgments or at the back of the book that I was very grateful for them being my focus group of two to begin with. And I think what I really learned from them is—and you read about it in the media, but certainly talking to them—I consider them reasonably media-sophisticated, engaged people. And there is a level of cynicism and skepticism about the system and what to expect from the grown-ups that is radically different. Maybe people felt like that in the ‘60s when they were that age. I’m a generation almost younger than that, so I didn’t feel that. But just this skepticism and “it will never work for me” is so pervasive. And I think some of that is obviously the environment we’re in and two pretty large systemic failures, most importantly, the great financial crisis. But also, I think when you’re young, compound returns don’t make sense. You don’t get a visceral understanding for how that works. And I do think that some of the young inability to trust that it will work, which we’ve damaged in all kinds of ways with systemic failures from leadership, and I think that’s a challenge for all of us in this society. It’s just a much lower level of trust in institutions. But specifically for the younger people, when you put money on top of it, I think it’s so difficult for your brain to understand the power of compound interest unless you’re a math geek. That math really, really, really works. It’s very powerful, but you need to let your money grow for 10 or 20 years before you really see how powerful it is. And that, I think, is an insight that I really hope people take from my book.

The single most important thing that somebody in their 20s or 30s has is time. And it is truly magic for what it will do for your future. But it’s hard to take that on faith and you have no personal experience in it until you’re out 20 years later, and then you can look back and go, “Wow, that worked,” or, “Oh, I wish I had.” I want them not to say, “I wish I had.”

Arnott: In addition to talking to your own sons, you also conducted some focus groups of younger adults to help prepare for the book. What was the purpose of those focus groups and what kinds of topics did you cover with them?

Lester: Well, I did, with the help of a company, a bunch of surveys where I really wanted just to get a sense for how people thought they were doing saving for retirement and how they actually were doing saving for retirement. So, we sent this out in the summer of 2021 and got a lot of data about savings rates and attitudes and stuff. And when we looked at it, it was very clear that people really fell into four buckets, again, aligned on this: How are you doing versus how do you think you’re doing? And it was fascinating looking at—and everybody I surveyed was between the ages of 21 and 45, all income levels, all education levels. And the group that was doing well and knew it, really skewed very heavily male and also skewed very heavily—and I really dove into this in the focus groups—I called them the cryptonauts. They were really into money. They were geeking out on the data. They were on all the social media and internet sites and giving each other tips. Again, I called them cryptonauts because that’s what was going on back then. But they were giving each other tips on day-trading and were kind of geeking out on this stuff. And the only woman in the focus group who we could recruit, because again, we were trying to match the demographics of the thousand people when we recruited the focus group. So, we got similar age, similar income distribution, and similar gender mixes. And the only woman had been taught how to do this by her grandfather, but everybody in that group had a mentor, a financial mentor, who taught them how to do it.

And then the other three groups were also fascinating. About 50% of the people were not doing well and knew it. And then the other, about 35% of the people were almost evenly split between the other two groups—the ones who were doing just fine based on their self-reported savings and investments, but thought they weren’t. So, they were the worried well—skewed very female, didn’t have a lot of mentorship, didn’t have a lot of understanding but were just really good savers. And then to me, the most interesting group from my former hat as running target-date funds, was the group that thought they were doing just fine and were not at all based on their self-reported savings, were saving way too little. And I knew this before I left J.P. Morgan. But the single scariest thing I heard them say was, “Well, we know we’re doing fine because our company enrolled us in the 401(k).” And then when we probed and said, “How much are you saving? How do you know it’s enough?” They said, “I don’t know how much I’m saving, but the company did it. So, I know it’s right.” That was answer number one. Terrifying, right? If you’re an auto-enroller and you haven’t been auto-escalating, that is terrifying.

And then the second answer that also I found troubling, especially in this sort of internet age is, “I know I’m doing everything right because I’m doing what everybody else around me is doing.” And both of those really give me pause, because if you’re gauging success on everybody else— and again, I see this now on social media—there’s a lot of really good stuff on social media about finances. But you know what? There’s also a lot of not-so-good stuff out there. And if you’re not very sophisticated about this stuff, it’s pretty hard to tell it apart sometimes. So, that is troubling. And clearly the ones either they were listening to people who were equally ill-informed, or they were listening to people who were giving them actively bad advice—and I couldn’t tell in the focus groups which one it was—but it was troublesome.

Benz: In the book, you talk about how people in their 20s and 30s today are actually pretty good savers based on the data, despite the widespread perception that they’re spenders on avocado toast and whatever else. Can you talk about that?

Lester: I haven’t seen the data on that. But my suspicion is that’s almost entirely due to auto-enrollment. And certainly, a lot of the data around this is for retirement. If you compare them to the boomers, the boomers didn’t even have 401(k) plans when they were entering the workforce, and they certainly weren’t getting auto-enrolled. So, I think for younger workers who start in a company that offers a 401(k), I’d say most of them are now getting auto-enrolled. Many of them are now getting auto-escalated. And certainly, when I talk to people in this age bracket, what I hear is,

“I’m really worried. I’m not doing it right. I’m not doing enough.”

And I say, “Are you in your 401(k) plan?”

“Yes.”

“Do you know how much?”

“I’m not sure. I think 10%. I need to check.”

And I’m like, “You’re doing OK.”

There are some things we can check. There are some things we can do. But if you’re in and started in your 25 or 30 even, you’re on the right path. So, some of that anxiety and fear is because they’re hearing it everywhere as much as actually having any, like, “I know I’m doing it wrong.” In fact, a lot of them are doing it pretty well. They just need to be reassured, frankly.

Arnott: You also talk about some of the headwinds for young adults who are just getting started with their financial lives, including the fact that the cost of college has gone up so much. What are some of the key challenges for people in this age group?

Lester: I think there’s several. One is that we’re in overall a more affluent society than certainly society was when I graduated from college in 1986. Social media makes it a lot easier to see what your peers are doing. And I think there is a bit of norm-setting that happens when you see everybody else doing it and you think you should be doing it too. It is also true that the median price of housing, whether you’re renting or buying, versus the median salary is significantly higher. The median price of a car is significantly higher versus the median salary. So, a couple of really big-ticket items that most people anchor on as signs of, “I’m an adult now because…” are really more expensive. We lose a little sight over the fact that they’re also probably a lot nicer. And some of that increase in cost is actually reflecting a much wealthier society. So, the car that you buy now is nicer and safer, the house that you buy or the apartment that you rent is probably per-square-foot bigger than what I would have gotten in my age, certainly nicer. So, it’s not quite apples to apples in terms of what you’re getting for the money. So, I think that’s just true.

And then I also think because society overall is more affluent, people are more uncomfortable struggling with stuff. I don’t want to sound like a cranky old boomer who says, “Oh, kids these days,” because it’s more than that. It really is more than that, these big-ticket items being one of them, and to get the same level of external achievement is just harder. But it’s also, I think, a more affluent society really struggling with a lifetime income curve. And it takes a while to have your salary increase to the level that you grew up with. I had this conversation with one of my kids who was saying, “I’ll never be able to afford what you and dad had.” And that may be true, especially for my child who is a musician.

He said, “We’ll never take nice trips.”

And I was like, “Honey, do you remember the vacations we took all the way through middle school?”

And he’s like, “What do you mean?”

We always used to see their great grandmother for spring break. And I said, “Remember where we stayed where dad and I used to pull the mattress off the sleeper sofa in the living room because it was so uncomfortable. We couldn’t sleep on the sofa bed, and we gave you guys the bedroom.”

And he’s like, “Yeah, I love that place.”

And I was like, “Well, let’s talk about how fancy a vacation that was.”

It wasn’t; it was like negatively fancy. Or the apartments we used to rent at the beach with no screens on the windows and mosquitoes. And they don’t remember any of that. They’re anchoring on the nicest bit of our life that happened when I was in my 50s. So, some of it, I think, is just that comparison too that people lose sight of.

But I don’t mean to derail this. I do think that because those big-ticket items, whether it’s colleges and debt, certainly starting off with debt is something that the boomers did not do to the same degree. College was just much more affordable. So, you’re starting in the hole from a debt perspective. Those big-ticket items that you view as milestone achievements are coming later because they cost more.

Benz: Anne, you mentioned the comparisons, people comparing themselves. I wonder if you can touch on the role of social media in that where it seems like younger people, especially are comparing their vacation or their wedding or their house to their peers and often coming up feeling pretty bad about themselves. So maybe you can talk about that dimension and whether that came out in your focus-group discussions.

Lester: When I was running the focus groups, what I was really curious about is where people got financial information and certainly the overwhelming source of financial information was social media. If I knew then what I know now, I would have maybe probed a little more about that sort of lifestyle anchoring and that sort of normalization of what “everybody is doing it” kind of a thing. And again, I think when you’re younger, peer influence is so important and it’s so hard to not get swept along. I just saw an article today—and I’ve been following this trend myself for the last six weeks since it kind of bubbled up—about loud budgeting and being really public about saying I’m trying to save money.

So, there’s an example of social media actually being a really healthy way to use your peer group to affirm healthy behavior and normalize not spending money because everybody else is. The article started with somebody saying, “I canceled my milestone birthday trip to London because I don’t have the money.” And I’m like, what, 30 years old and you’re taking a milestone trip to... what?? So, that’s what I was referring to before, this sort of normalization of luxury spending, I think is very attributable to social media. It used to be that you’d see Lifestyles of the Rich and Famous once a week on TV and now it’s just in your feed constantly. So, you have this aspirational level of spending normalizing things like weddings. Well, of course you have to have X, Y, Z; of course, it has to be a wedding weekend and not just an event. It just normalizes stuff. And then you see your peer group starting to do some of those things. And then suddenly it’s the new normal. So, I think that’s very detrimental. But also, some good stuff on there like the loud budgeting.

Arnott: One recurrent theme we noticed in the book is the idea of getting out of the shame spiral, not berating yourself because you didn’t start saving earlier or made some financial mistakes along the way. Was that something that came out of the focus groups that young people are beating up on themselves and maybe getting in their own way because they feel bad about previous mistakes?

Lester: Not really. I think maybe I gather that more in one-on-one conversations and maybe that’s just telling you a little bit about myself. I certainly felt that way, and I think all the research that we read about losing weight or trying to overcome habits, the script that starts playing in your head about “I can’t, I can’t, I can’t,” I think that came much more from there. But I have seen and felt and heard when I’m having one-on-one conversations with people of any age, when I mentioned that, you can just see their posture change. Somebody had tears well up in their eyes. This one young woman I was talking to when she asked me if she was doing OK, I said, “Yeah, you’re doing fine. And she actually had tears in her eyes, and she said, “Oh, thank you. I never know if I’m good enough or doing it well enough.” To some extent maybe this goes back to social media as well and maybe to some trends I’m seeing playing out just with younger people—feeling like the stakes are very high for them all the time. I don’t think I felt like that when I was their age that I have to get into the right school, I have to get the right job, I have to do this right otherwise something terrible will happen. I’m not sure what the terrible thing is. But this just constant fear of failure and stress, which just seems to be dimensionally different than I recall it being.

Benz: Do you sense that people in this age cohort feel a little more comfortable talking about money than previous generations did? And if so, do you think that’s a healthy development? You talked about how your parents didn’t talk much about money at all really at home and how that influenced your thinking a little bit as you were starting out.

Lester: I think so. I think things like the salary transparency—a woman whose name I’m blanking on on TikTok who just asked people what they’re making—and people are saying that this loud budgeting. I think it’s something I’m hearing in the financial-services community. Financial advisors are getting more comfortable asking their clients about their money stories. I think all of this is healthy. I think again because so many people feel like they should know—I hate the word should—they should know more about personal finances; they should be doing better; they should be whatever. And I think many families either feel reluctant to talk about their money because they’re worried that people will think they have a lot and they don’t want their kids talking about, look, how much money we have and bragging. Or, and I think much more commonly, feel ashamed because they are struggling with money, and they don’t want their kids to know that there are hard conversations happening. I can’t remember if I put this in the book or not and I can’t remember the stat over my head, but something like 70% of parents would rather talk about sex education with their kids than money. It’s a really high percent would rather talk about the thing we all think is really uncomfortable than talk about money. So, there’s clearly a lot of shame associated with it, otherwise we would be happy to talk about it.

Arnott: So, in the book you share a lot of helpful hacks and tips and tricks for young people who are looking to get their savings programs on track. Can you share some of those ideas?

Lester: So, the biggest one, and this is straight out of the 401(k) playbook is just automate everything. Automate the money going into the savings account, automate the investing, automate the escalation if you can, like you keep saving more and some 401(k) plans will let you do that, some won’t. It’s the single most powerful thing you can do. And then put it in a place, put your money, put your emergency savings. I think making sure it’s not really easy to see and get is also really important, and if you’re saving into an IRA or 401(k), it’s kind of hard to get back out. A, you have to do a request and it’s a thing, but also you pay these tax penalties, which is uncomfortable. So, that’s a safe place for your money longer term and in a true, true, true, true emergency—and I talk a little bit about that in the book, you can get it back, but it makes it very hard. I think having money sitting in a savings account that’s on the same home screen as your regular bank account is asking for trouble. So, getting it out of sight I think is a very powerful thing.

I think the other really important hack that I talk about is again right out of the 401(k) playbook, which is save more tomorrow. Make sure that you continue increasing the amount you save as your lifestyle gets better as you earn more money. Because if you don’t do that, you will not be saving enough. But it’s so painful to increase your savings rate today because you have to stop spending money. The younger you are, the more likely you are to see meaningful income increases as you get more experience and become more valuable as an employee, and so at least for the first 10 or 20 years of your working life you can probably count on seeing some pretty consistent increases in your salary and that’s the great way to get your savings rate up.

Benz: One mental trick that you shared in the book to help limit spending is to add a zero to whatever purchase you’re contemplating, and I thought that was such a useful way of framing it. Can you talk about that mental trick?

Lester: So, it’s really something that came about because my husband and I are serial rehabbers, and we overbuy houses that need a lot of work and then spend decades rehabbing them. So, we’re living in an old house that we spent 13 years fixing up and for a while we were looking at replacing a bunch of windows, which is really not very cheap. And I was changing the unit of money—every time I thought about spending some money, I’d say, well, that’s a window, better not do it. Having a handy thing that keeps your eye on what you’re trying to achieve is so powerful. So, we were thinking about buying—this is back in the early 2000s—buying a big screen TV, and I was like, well, that’s going to be two windows. No, we can’t, we don’t need a new TV. I want those windows. Then it was like, well, how does that translate into retirement? And I want to be able to live another six months without running out of savings. That doesn’t work. I want to be able to buy a boat. No, that doesn’t work either. And then it was like, well, it’s just how much more money is it? Because let’s assume you earn a 7% return, that money doubles every 10 years. In 30 or 40 years, it is 10 times;10 times the amount, and that’s fast math you can do.

Arnott: One of the other challenges that people face as they’re just starting out is how to prioritize building an emergency fund versus saving for retirement or paying down student loan debt. You outline a hierarchy for prioritizing those three objectives. Can you talk about that a little more?

Lester: I’ve seen people who use a similar hierarchy, I’ve seen different ones. And for me, it really boils down to—and maybe this is again coming out of my career—risk management and really avoiding the really, really bad outcomes. So, really, really bad outcomes are outcomes that push you into financial crisis or bankruptcy. So, to me the number-one priority is to really focus on building up your emergency fund because that is what’s going to keep you financially healthy, when you don’t have to run up credit card debt, when you need to replace your tires or hit a pothole—whatever the thing is, coming up with that $1,000, $2,000—you lose your job. So, emergency fund even more important than retirement.

But what if you have an employer who offers a matching 401(k) program? You also really want the free money. So, to me, if you don’t have a 401(k) plan and you only have to do this by yourself, you should just focus on your emergency savings first and then start working on your retirement savings. If you do have a 401(k) or a 403(b), or some other kind of workplace savings program, and you get matching from your employer, then you need to start working on both simultaneously. After you have at least three months of emergency fund—and again, I talk about in the book how you should think about three to six months. And if you are in a volatile industry, if you’re self-employed, if you know you’re in an economic environment that may make you more prone to a layoff, you might want to lean more toward six months. If you are a government employee and very unlikely to get fired, maybe you can do the three months. And you’re getting all of the free money from your employer. You get the full match from your employer, maybe not maxing out, maybe not at the target savings amount you want to get to, but at least getting the full match, then I think it’s very appropriate to turn your attention to paying down high interest-rate debt. So that is debt with—it’s a little bit arbitrary, like more than you would get investing the money in your 401(k) plan. I picked 8%. We could argue about is that 7%, is that 10%, but it’s 8%. You want to pay that down as fast as you can. And you want to continue making payments on the low-interest rate debt, which might be federal student loans or other kinds of debt under that 8% level. But you really want to get rid of that high interest-rate debt stuff first.

Benz: We wanted to switch over to discuss investing. I was struck by your investment recommendations in the book. You’re pretty unequivocal about keeping things simple with target-date funds or perhaps a three-index fund portfolio. I’m curious, was it liberating to be able to provide such clear-cut advice to tell people to just buy a basket of Vanguard index funds, for example, since you’re no longer working for an asset manager?

Lester: No, I don’t think so. To me, again, it goes back to how is somebody going to spend their mental and emotional energy. The first thing I recommend is target-date funds, because guess what, I used to manage target-date funds. I’m a huge believer in target-date funds. I’m a huge believer in active management as well. It’s hard to pick active managers because, especially in US equities, most managers don’t outperform. So, it requires time and emotional energy and a process and a lot of skill. So, I just think that’s asking an enormous amount of individuals. And at the end of the book, I do go into some tips for investing and say, “Look, if you think you’ve got the time, the energy, and the skill, then go for it.” It’s fun. I did it for a long time. I think it’s fun. But most people don’t think this stuff is fun. Most people don’t have the process or the—discipline, starts putting it into judge-y territory—just the time and the energy to spend doing it in a process that they can repeat. And I think unless you’re going to do it that way, you’re really better off not doing it at all and making it as simple as possible because the payoff for the incremental amount of emotional and intellectual energy you need to spend on this is uncertain.

Arnott: Do you think there’s a tendency on Wall Street to make investing seem more complicated than it really is or needs to be? And what’s the motivation behind that?

Lester: I’ve thought this for years that one of the main challenges for the financial-services industry when we talk to our clients is that we think this stuff is fun and interesting. Because guess what? Most of America, like I said before, just wants the whole thing to go away. Just tell me I’m going to be OK and make it go away. I don’t like this. It’s uncertain. If you make me think about saving for retirement, it’s unpleasant because I’m denying myself stuff I want right now. It’s volatile. You can’t promise me it’s going to work. And oh, by the way, I’m going to die at the end of this. Why should I like this experience? There’s nothing good about it if you don’t happen to think this stuff is intellectually interesting.

So, I think a huge part of the challenge is the industry is populated with people who geek out on this stuff and sometimes struggle to understand why clients don’t share our enthusiasm. So, right out of the gate, we’re like, we’re a mismatch of the intellectual starting point and then the vocabulary that we’re using. I think some of it is regulation in that those of us who are still subject to securities licenses have to be extraordinarily precise about how we say things, which makes us sound squirrely, frankly, when we’re talking because you can’t just say stuff. You have to qualify it all the time. And then you have to use very precise language, which also is very unrelatable. And I may have told you this ages ago, Christine, back in my former life where it took us a huge amount of effort to get regulatory and compliance people to allow us to use clip art to show the risks on the target-date funds for J.P. Morgan. How about saying this is a risky investment and putting that red circle with a line through it. That is pretty clear. Well, it took us months to get them comfortable using stuff that was that obvious and every time you get some industry move toward simplifying some of this stuff, something happens, and it gets pulled back the other way. So, some of that is self-inflicted. And then, yes, I will finally say that I do think that maybe some people—I’ve seen it happen—enjoy being mysterious and knowledgeable and being seen as experts. And when you want to be seen as an expert, you tend to lean in hard to jargon and sophistication that doesn’t help somebody understand very well. But I don’t think that’s all of the story.

Benz: I want to ask about financial advice and whether in the focus groups you got any clues as to how younger age bands are thinking about financial advice. You mentioned that they have widespread skepticism about the industry and the system. But any feedback on financial advice and the willingness of younger people to hire financial advisors and pay for them?

Lester: It was a little depressing to be honest—depressing and not so depressing depending on the hat you’re wearing. So, I was actually quite encouraged to see that people were really willing to take financial advice from their parents. And I was like, really? Wow, that makes me feel better as a parent, like my kids are listening to me, I think to a greater extent than prior generations did. So, clearly, our maybe helicopter parenting is paying off in some regards. Our kids actually may listen to us a little more. But certainly, there was a very wide strand of being willing to listen to social media because I can trust my peers. And I don’t want to listen to financial-services institutions because they’re just trying to make money off me, which makes my head explode. Because it’s like, well, what do you think all those people on social media are doing? What’s their financial model? Help me to understand how you think—why are they doing this? Some people really are doing this from the bottom of the goodness of their hearts. But I think a lot of people are doing this to make money. And some of them are extremely transparent about it. So why do you trust them more than a regulated financial-services institution whose employees will go to jail if they do it wrong rather than somebody on YouTube? I don’t understand that.

This skepticism of the man and not being willing to understand how the social media ecosystem works with people being sensationalist to get clicks to sell advertising and get paid by brand management people. Or, and I think we saw this happen with the whole GameStop thing, maybe running a little pump-and-dump stuff, that’s just like, how do you think they’re making money? Why do you think they’re doing this? And that struck me as rather naive, to be honest. I was surprised at the naivety behind that. Isn’t everybody doing this somewhat motivated by money?

Arnott: So, we’ve talked a lot about the target audience for this book, younger investors in either generation Z or millennials.

Lester: If I could say younger noninvestors. The person I most hope picks this book up is somebody who doesn’t see themselves as that investor.

Arnott: That’s a great point. Thanks for clarifying that. But we’d also like to talk about parents who have young adult children or kids who are still growing up. What advice do you have for parents who are trying to help their children navigate their finances when they’re just starting out?

Lester: Aside from giving my book to their children? I mentioned this book earlier today and I thought, I need to see if it’s still in print. I don’t know. It’s a book called Money Doesn’t Grow on Trees. And I remember reading it when my kids were in preschool, maybe. And it gave such a sensible outline for—you want your kids to be able to be making good, rational financial decisions when they’re in high school. And you want to give them control over their money so that you can watch them spend money. And the author for this advocated actually having them spend clothing, all of it, besides housing, basically. And with two boys who really didn’t care what they looked like, I wasn’t willing to give them control over their clothing budget because I knew they just wouldn’t buy any. So, I have standards and they were not hitting them. But we really tried to do that.

One of the things that I really learned in my book that I knew was true from my own story, but I had been quite struck at how true it was for so many other people, just not having a place to learn about how money works. And I don’t mean investing, like becoming a stock investor. That’s great, too. And if you want to do that with your child, that’s a fabulous thing to do. But I mean really basic stuff. Like you have $10 a week in discretionary spending and depending on your own circumstances and where you live and beliefs, that might be for a middle school student that I don’t know, however old they are. But that’s your money. You decide how you spend it. Don’t ask me for anymore. Period. That is really going to teach them some lessons about money with training wheels on because you’ll be there to rescue them when something happens that takes them off the rails. And I think that that was the single most powerful thing I took away from my children.

My husband and I talked about that a lot and applied it to all kinds of things like internet usage and when do you have certain privileges? Like senior year in high school, all the boundaries have to be gone. So, you can really not discover this sophomore year, or worse yet, discover them in your first job. That’s a terrible time to figure out that you really need to do your homework. Don’t do that your first job. So that to me was the most powerful thing I could imagine. And some of that trickles through the book too. How do you put guardrails on yourself? I think if you’re a parent, how do you open conversations about money up? I think one thing that I was very conscious of in this book is how much easier it is to be vulnerable with someone if they’ve been vulnerable with you first. And that’s very much something I try to do in my book is to say, look, just because somebody’s got the expert label doesn’t mean they knew how to do everything once upon a time. And I think that can be very effective for parents.

Benz: In our remaining time, we’re hoping to mine your deep expertise in the retirement savings system. You were central to J.P. Morgan’s retirement efforts for a couple of decades. So, we wanted to talk about target-date funds, which you managed. And some of the work that you and your team did comparing target-date fund investors returns to those of retirement plan participants who were self-directed and picking their own fund from the menu. Can you talk about the findings there and what you see as the implications?

Lester: Actually, I don’t cite those directly in the book, but it certainly featured in, as you point out, my focus on simplicity. I think even professional investors get caught in the fear/greed cycle. And again, just going back to behavioral economics, there are so many triggers for assuming you’re right—having overconfidence in your views; thinking that when everything is going well, it will keep going well; feeling more confident about risking more money; investing more in higher-risk assets when everything is going well. And if you’re a professional investor, you’ve got a team of people who, A, are trained in understanding that this is the way their brains are working, and B, a whole bunch of models and rigor and peers who are working to factor that those biases into the way you actually implement decisions so that you are less likely to fall into those traps. I think when you look at that specific research we talked about—and it’s not just the work that J.P. Morgan published, but Dalbar publishes research like this every year, and Morningstar has done a lot of this research too, I should say—when you look at the way individuals trade in and out of things, whether they’re individual stocks or mutual funds in their own investment accounts or inside of 401(k) plans, they typically buy high and sell low over and over and over again, which is how you destroy wealth. Or they’re wrong risked. And by that, I mean they’re in their 60s or 70s—we saw a lot of this—and had 100% in equities, or they’re 20 and had 100% in cash. So those two things—buying high and selling low, because you buy more when it feels good and you sell when you’re worried—is the opposite of how you make money, and then just having just absolute wrong level of risk for the time horizon that you’ve got. And those two things I think are the biggest contributors to that gap you see in performance.

Arnott: You mentioned automatic enrollment and auto-escalation as both being two very positive things for younger employees just starting out. Do you think that there are other types of nudges that might help people from a behavioral standpoint?

Lester: It’s just starting now, and I don’t know if this goes into your nudge category, but certainly, the potential now to add two things, which are both coming out of the Secure legislation: to add emergency savings funds and have those be payroll-deducted is huge. And again, there has been a lot of research done on the—Brigitte Madrian and many, many others over the years—if you don’t have emergency savings, people go into their 401(k) plans and borrow more than they otherwise would, just because you want to take it as much as you can. Once you start borrowing, you tend to borrow more than you need. And if you have an emergency savings fund, you don’t tap into that. So, I think that that’s a nudge if you get automatically signed up for that emergency savings. That’s, again, so powerful because so many people don’t have emergency savings. In fact, this one young woman who was so worried about her retirement fund didn’t have any. She was contributing fabulously to her 401(k). She had no emergency savings. And I’m like, “Well, you’re doing fine for retirement, but get the match, dial that down, get your emergency savings set up because you don’t want to pull it out of your 401(k).”

And then the second one is the contributions when workers are putting stuff into student loan payoffs. I think, again, for so many people, student loans are so challenging. And the more help you can give people to feel good about paying off the student loans, the better. And I know a little bit less about this personally but seeing more financial wellness-type programs being integrated into the 401(k) system is another way to help people. I don’t know that the uptake on those is as high as it could be, and that’s going to be an interesting thing to watch as it evolves.

Benz: I wanted to ask about the retirement saving system broadly speaking. We know that younger age bands are more likely to job hop than older workers. They cycle through jobs seemingly every couple of years. So, given that young workers are changing jobs frequently, does tethering our retirement savings to our employers even make sense? Or should policymakers be contemplating something like thrift savings program for the masses that would be entirely detethered from employers?

Lester: I’m personally a huge fan of the Australian system where the employer is obligated to pick a default provider. The provider in the Australian system, the super system, is not a government provider. They’re private. They are managed by fiduciaries, not the employer. So, it’s a private provider. But the only obligation for the plan sponsor is to create a default if the individual does not choose a provider for themselves. Australia also has mandatory contributions. I also think that’s good if you want to have retirement savings for people. That’s a whole other conversation. But the individual can also choose their own provider. And if you don’t put in your provider when you get hired by a new employer, they put you in the default. But you can very easily roll these together. You can keep track of it on a single system. There’s a single dashboard in Australia that you can see everything on. And to me, that is the best of all worlds—where you’ve got a default, you’ve got a failsafe, but you also have the ability for the individual, if they choose to, to say, this is what I want. And then they can have that follow them around for their whole career. So, I think that’s incredibly powerful.

I know why it started that it was an employee benefit. That was the way our system evolved. I think in hindsight, nobody would create that system on purpose. And I think a system where you’ve got the ability to contribute to a single pool, that that pool is accessible from any employer or platform. Coming out of the industry, I do believe that a competitive, well-regulated, with appropriate oversight, private market is going to come up with innovations and probably have a more robust experience than a pure public-type system would like the federal thrift savings program. But I think there’s a lot to learn from how that works, assuming you can have the portability or the ability to tap into that wherever you want it.

Arnott: We just have a few minutes left here. We’d like to zoom out and talk a little bit about your own experience, both during retirement so far and during your career. You had a very high-profile position at J.P. Morgan and were well-regarded for your work there. We often hear that people can really feel a loss of identity when they step away from a career like that. Can you talk about whether you felt that? And if so, how did you cope with those feelings?

Lester: I didn’t feel that. Part of it is that we announced that I was leaving in March of 2020. And the world just kind of stopped revolving the following week. So, I suspect I would have felt that a little more acutely because that offboarding process would have been nine months long or whatever it was. It would have involved what would have felt like a perpetual goodbye party—I was going to go speak at conferences and visit clients and do a world tour, and all of that would have been gratifying and made me really conscious of what I was leaving. I didn’t leave anything except a really chaotic and unpleasant-sounding work situation, frankly. It just sounded really hard to navigate. And I just remember telling Dan Oldroyd, who was the person who took over and was my deputy, I just remember telling him I am so grateful I’m not in charge of any of this, sorry! I don’t have to worry about… because once you announce you’re leaving a job like I have—I was still there, and I was still engaged, and I was still part of the team, but I wasn’t actually making any decisions anymore. So, that was a wonderful, wonderful thing for me personally. I think the team did a fabulous job navigating it, but it must have been so stressful.

And then, as the pandemic was ending, I had a couple of things I knew I wanted to do when I was leaving and was very public about. One was work on this book, which took me a little longer than I thought, but here we are. And the second was to do this pilgrimage walk. I had read a book before I actually had decided to leave J.P. Morgan about the Via Francigena, which is a pilgrimage trail from Canterbury, England, to Rome. It’s a 1,000 miles. And I just remember feeling this overwhelming “I have to do this” when I read the book. And it’s the first and maybe only time in my life—I’m not particularly at all religious—but this just was such a compulsion. I have never felt that strong a compulsion to go do something. And I had planned on doing that shortly after I left, and as you know, the world did not permit me to do that because of Covid. But it turned into a real touchstone for me that I was going to do this walk and between the book and the walk, I felt like I knew what I was doing. And then the world, like I said, was just completely shut down, so I didn’t really notice that, it was like what was there to miss? Nothing. So, that also frankly helped, I think.

Benz: I wanted to ask about your career and the fact that you managed to be a very successful woman in a field that is largely male dominated. So, what are your key tips for women who are building their careers, I would say, inside or outside the financial-services industry?

Lester: I guess I’d say a couple of things, and I don’t know if it’s because I grew up with brothers or what. And I have to say I think J.P. Morgan has consistently done an extraordinary job of having very senior women. And even when I got to J.P. Morgan Asset Management, there were already very senior women there in the ‘90s. I was often the only woman in the room but very quickly that actually stopped being true. And I can remember even in the early 2000s being on all-female deal teams and walking into finals pitches and having a bunch of guys coming out and then a bunch of women going in and we were just like, “Yeah, bet we’re going to win this one.” And we did, because often HR benefits people are women, so it was quite noticeable actually.

I don’t think I ever experienced personally that in-your-face discrimination. I think I certainly did notice in meetings what you hear a lot about, and I think happens all the time, which is that you say something and then a guy says that three or four minutes later and then everybody goes, “Oh, what a great point you made, sir.” And I was like, “What, I just said that.” And I certainly have actually made deals in meetings with other women to make sure we call each other out and make sure, “Yeah, it was a great point. Anne just made it 10 minutes ago,” or whoever just made that 10 minutes ago. And that helps. I think that’s a great thing to do—find some allies and make sure that you don’t get talked over. I think the younger generation, again, is so much better at that stuff than we are.

I think another thing that I would always say to women, and I would say it to men too, but I think women especially struggle with that if they’re thinking about having children is to know what your priorities are in terms of career progression, the importance of being compensated, keeping your skills fresh. I don’t know that anybody talks about work-life balance anymore, but if you got offered the chance to do a big deal or you had a big commitment with your child, which one would you pick? There’s no right answer here. Everybody has got their own priorities for all kinds of reasons. But if you don’t know what they are, when you get confronted with a choice— and I remember this happening to me in, I guess it was 2000 when I came back from maternity leave after my second child was born—I got put on this Internet Lab Morgan project, which was a huge big deal and we were in a fun room with beanbag chairs and free food and we were going to break everything and reinvent financial services with this crazy internet stuff. This was almost 25 years ago now. So, I just found myself staying later and later at work because there was all this cool stuff, and we were all innovating, and it was really intellectually exciting. And then I just remember thinking, “Wait, I’m getting home at 7:30 pm, like, what the heck, I’ve got a 9-month-old at home. No, no, no, no, no!” And I pulled way back and accomplished a little less in that role than I might have, and it may have affected my career and I’m fine with that, because I had a priority and that was making sure I was home in time to have dinner with my baby or certainly feed him and have bath time with him and read him a story before he went to bed. I was sliding in 10-minutes-before-bedtime kind of a thing, and I just was like this is not the person I want to be. And it made that choice. I didn’t mind making the choice because I knew I was out of alignment with my values.

Benz: Well, Anne, this has been such a fun and wide-ranging conversation. Thank you so much for taking time to share your insights today. We really appreciate it.

Lester: Thank you, and it was great fun on my side, too. Thank you.

Arnott: Thanks. This has been great.

Benz: Thank you for joining us on The Long View. If you could, please take a moment to subscribe to and rate the podcast on Apple, Spotify, or wherever you get your podcasts.

You can follow us on Twitter @Christine_Benz.

Ptak: And @Syouth1, which is S-Y-O-U-T-H and the number 1.

Benz: George Castady is our engineer for the podcast and Kari Greczek produces the show notes each week.

Finally, we’d love to get your feedback. If you have a comment or a guest idea, please email us at TheLongView@Morningstar.com. Until next time, thanks for joining us.

(Disclaimer: This recording is for informational purposes only and should not be considered investment advice. Opinions expressed are as of the date of recording. Such opinions are subject to change. The views and opinions of guests on this program are not necessarily those of Morningstar, Inc. and its affiliates. While this guest may license or offer products and services of Morningstar and its affiliates, unless otherwise stated, he/she is not affiliated with Morningstar and its affiliates. Morningstar does not guarantee the accuracy, or the completeness of the data presented herein. Jeff Ptak is an employee of Morningstar Research Services LLC. Morningstar Research Services is a subsidiary of Morningstar, Inc. and is registered with the US Securities and Exchange Commission. Morningstar Research Services shall not be responsible for any trading decisions, damages or other losses resulting from or related to the information, data analysis, or opinions, or their use. Past performance is not a guarantee of future results. All investments are subject to investment risk, including possible loss of principal. Individuals should seriously consider if an investment is suitable for them by referencing their own financial position, investment objectives and risk profile before making any investment decision.)