Whether it's the font setting in your Word document or what you grab from the food court for lunch, defaults can be powerful. As journalist Lena Groeger points out, defaults set a standard for our actions, behaviour and decisions. Chances are, your television, computer and phone are mostly stuck on their default settings. Sure, we all customise some things (some of us more than others), but for the most part, it's safe to assume the general population uses the settings that come out of the box. Those settings affect how we use that product every day, and we typically don't give it much thought. Groeger explains how this translates to personal finance:
Most Americans are pretty bad at saving money for the future, especially for that ambiguously defined golden yonder called "retirement." And the current defaults don't make it any easier. Many companies' retirement plans, like 401(k)'s, are opt-in: You have to hike over to HR and get enrolled, and sometimes you have to understand a bit about investing. But an alternative strategy has seen massive success: automatic enrollment. This means that employees are enrolled by default, unless they decide not to contribute. Research shows that under these circumstances, participation in 401(k)'s skyrockets…
That's one takeaway — that implementing certain programs can help change default savings behaviour. But you can change your own defaults, too. This is why "pay yourself first" is such effective advice, even though you've probably heard it a million times. You make the habit easy and automatic. Similarly, changing your default might be setting up auto-pay on your credit cards. It might be as simple as establishing a rule for yourself to increase your retirement savings every time you get a raise.
We've covered these tips specifically before. The main point here is to simply be aware of the role that defaults can play in your life. They're powerful, and they're powerful because we don't notice or do anything about them. If you can change your defaults, you can harness that power and use it to your advantage instead.