Automating Financial Wisdom

I almost titled this post, “You Can’t Automate Financial Wisdom.” But then I realized, you can.

A little background

I have a love/hate relationship with financial automation.

On the one hand, automation can be a wonderful help. In our household, we have some of our bills set up as auto-pay — those that cost the same amount every month. For others, I prefer to check them for accuracy before paying them online.

I also use automation to make my twice-monthly contributions to my employer’s 401(k) plan. And our online budget tool automatically records and even categorizes much of our cash flow—a big time saver.

On the other hand, automation has a downside. My concern is that millions of people are now having financial actions automatically taken on their behalf without really understanding why those actions are being taken and whether they are even the right actions.

The no-thinking-required retirement plan

Many workplace retirement plans now automatically enroll employees, automatically set their contribution amount, and even automatically choose what the money is invested in. Such automation is routinely held up as a great success because it has driven plan participation rates up.

I get that. More participation is a good thing. However, many of those same plans are now having to take steps to prevent employees from borrowing against their plans.

As Rob Austin, director of retirement research at Aon Hewitt, a human-resources consulting firm, explained to the Wall Street Journal, “People are getting statements telling them they have $5,000 in this account and they are asking themselves, ‘How can I get my hands on this money?’”

Apparently, you can raise participation rates and build up investment accounts via automation, but whether that money sticks around long enough for the savers’ retirement is far from certain.

Another issue with automated 401(k) plans is that the automatic contribution rate starts out very low—sometimes 3% of the employee’s salary. Many employees never increase the amount, either assuming it must be the right amount or never really thinking it through.

Putting the cart before the horse

If automation is to work effectively, it can’t come first. Understanding our God-given identity and life purposes, and knowledgeably choosing daily financial priorities that are in synch with that identity and those purposes, have to come first.

If we understand and embrace who God made us to be — stewards of his resources, or as I prefer, wise builders

If we’re clear about our God-given life purposes — to love God and people well and to make a difference with our lives

And if we’ve set our financial priorities in a way that reflects that identity and enables us to fulfill those purposes—where we give and save portions of all that we receive, avoid the bondage of debt, invest patiently, and spend wisely

If automation is used to help carry out all of that, it can be a very good thing. But identity, purpose, and priorities have to lead; automation has to follow.

Identity is the ultimate automation

Knowing who you are is the ultimate form of automation because it guides you in all sorts of decisions—financial and otherwise.

Chip and Dan Heath use an analogous illustration about a science professor in their book, Switch:

Imagine…you had a lucrative opportunity to consult on the toxicity study of a new drug for a big pharmaceutical company. From a consequences point of view, the decision to accept the job would be a no-brainer—the work might pay far more than your university salary. But from an identity point of view, the decision to accept the job would seem less clear-cut. You’d wonder what strings were attached, what subtle compromises you’d have to make to please the client. You’d wonder, “What would a scientist like me do in this situation?”

Newer believers may have to consciously ask themselves, “What would a steward of God’s resources do in this financial situation?” But the longer you live a life of faith, and the more God’s Word is written on your heart (memorizing the verses linked to above would be a great help), the more your financial decisions will become natural, second nature, or something very close to automated.

What aspects of your financial life have you automated? And how have you made sure that your identity, life purposes, and intentionally chosen financial priorities lead and automation follows?

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2 Responses to Automating Financial Wisdom

  1. Nicole S April 26, 2017 at 9:21 AM #

    One thing we’ve automated (that I’m surprised you didn’t mention) is our giving to our local church. The tithe coming first – literally as well as first in our hearts – is simple to be intentional about with automation. We use our thought energy regarding giving with our other charitable giving, visiting missionaries, and one-time opportunities for generosity. Our tithes and our steady monthly contributions to ministries and missionaries are automated. This ensures we will never miss a month by mere oversight or busyness. Having been on the other side of this type of giving as para-church ministry members who raised our own financial support, we understand the peace and stability that comes from automated givers!!

    • Matt Bell April 26, 2017 at 3:46 PM #

      Nicole – That’s a perfect example of identity / purpose / priorities leading and automation following. I also like the idea of automated giving for the other reasons you mention. I know that many churches experience a decline in giving over the summer. People go on vacation and forget to give. With automation, there’s no forgetting.

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