When you were 8 years old, think about how you were persuaded to do something. While we all hated cleaning our room, eating vegetables at dinner or quitting our Nintendo 64 game to do homework, our parents knew how to trick us into doing those exact things. They gave us a reward for doing it.

If we finished our veggies, we got dessert. If we cleaned our room, we could go get ice cream. A reward was tied to the behavior they wanted from us and we gladly complied to get what we really wanted.

The funny thing is, we haven’t really changed since then. Mommy and daddy may not be the ones doing it for us anymore, but everything we do is still driven by the reward we get for doing it. And one app, Lift, has successfully helped individuals build habits by re-creating that reward.

According to Charles Duhigg in his book The Power of Habit, a habit consists of three parts:

1. a cue

2. a routine

3. a reward

Let’s take something everyone does as an example: brushing your teeth (at least, I hope you all do this). Brushing your teeth is a habit. You don’t think about it or exert any will power to make it happen. You just do it. And that habit is broken into three parts, like any other. This is how my morning habit of teeth brushing goes:

1. a cue (my contacts are put in. I always brush after I put my contacts in, which comes after I get out of the shower)

2. a routine (putting toothpaste on the toothbrush, brushing for 1 or 2 minutes, then spitting out the toothpaste and rinsing the toothbrush)

3. a reward (a fresh sensation and the feeling of a clean mouth, plus comfort in knowing that my morning dragon breath has been extinguished)

When you attempt to create a habit, a cue and routine are typically pretty easy to devise. It’s fairly easy to determine where the action begins and ends.

But the reward is not so obvious and is perhaps the most critical portion of developing a habit that will last over time. The brain craves the reward and associates the action of the habit with it. That craving is what makes habits stick.

What makes Lift so effective is that it creates an automatic reward.

On the app, you pick the habits that you are hoping to implement. Whenever you complete those habits, you mark them as done on the app. The satisfaction of checking and marking it as complete creates an automatic reward. It feels good to make progress and let the app track your success.

In reality, the reward could be anything. You could do a stupid little dance that makes you smile and it will trigger the pleasure of reward. But Lift takes any guesswork out of creating that and standardizes it for you.

And I know that it’s been working for me. How? I’ve noticed that I’ll forget to mark the habit as completed on the app sometimes. When habits become ingrained, our brain craves them in anticipation of the reward and experiences that pleasure whether that award actually occurs or not. If I’m forgetting to mark the app sometimes, that means I’m on autopilot and experiencing the reward simply by doing the action.

Which isn’t to say that the app becomes less useful at this point. I still use it to create new habits and I like to keep tracking my current ones. Their email updates on your habit activities help show how the frequency your actions are occurring is progressing. I’ve started forwarding these summaries to a friend to keep myself accountable.

Lift becomes so useful by filling a piece of our habit loop. Ryan Hoover recently ran a great post on “habit startups” about building products attached to our habits. Anyone interested in creating such a product can use Lift as an example: find what segment of the habit loop you fit in with your users and fill that need. It’s good for you and the customers you serve.

You may not have mommy looking over your shoulder anymore, but that doesn’t mean you can’t reward yourself for building good habits. Try out Lift and start eating your vegetables, kid.

Every year, we see the headlines telling us the millions of dollars in productivity lost while Americans fill out brackets for one of the greatest events in all of sports, the NCAA tournament, instead of working.

Hours upon hours are spent analyzing every team’s strength of schedule, defensive efficiency, previous tournament experience, RPI and other statistical measures that would make an actuary’s head spin. Seriously, look at the insane data analysis in this tournament preview.

Alas, despite all of the research and hours of college hoops you may have watched this year, somehow you’re bracket is still in shambles. I know, I totally thought the Bucknell Bison had a run in them this year, too, buddy. We’re not alone, though, as only about 1.5% of all brackets entered in ESPN’s tournament challenge remained perfect after just the first day of games.

How does this happen? How can you work so hard and know so much but still perform so poorly? To understand, we need to look no further than the stock market.

Every year, trillions of dollars are poured into the pockets of hot shot money managers with the simple goal of beating the average returns of the stock market. Yet despite the infinite resources at their disposal, over ⅔ of them fail to beat the average market indexes. Over a longer period of twenty years or more (you know, the amount of time you actually will be investing for retirement), nearly none of them match the returns of broad indices like the S&P 500.

Why is this? Why can people with all of the information and resources in the world fail to predict the ebbs and flows of the business world or the outcomes of basketball games between 19-23 year olds?

The fact is that markets and tournament brackets do not occur in an economic and rational manner, making them impossible to predict.

When picking a final four team, you may be able to see every good win or bad loss a team has, what percentage of rebounds they grab and how efficient they are on their defensive possessions, but you can never know if the point guard’s head will be elsewhere because of girlfriend issues or that he has a sore elbow he hasn’t told his coach about. While college basketball has all of the statistics in the world to analyze, you’re still attempting to predict the behavior of young adults in a high pressure, win or go home environment. Who knows how they’ll act or what small variables are occurring behind the scenes?

The stock market is even more complicated. You can analyze every letter on an S-1 and make the most well reasoned predictions in the world, but anything can happen to derail those. The investing blog Crawling Road sums it up nicely:

Investing is an inherently risky and unknowable business. It is a large social psychology problem involving millions of people making millions of decisions in their own best interests. In other words, it is easy for science to discern the speed of light, but not so easy to discern what your neighbor (and millions like him) will do when the quarterly unemployment figures come out tomorrow.

When you’re relying on an infinite number of small variables to coincide and create outcomes, you’re going to get chaos. While the number one seed should be focused and playing their best basketball against that plucky ninth seed, they very well may not, for any number of reasons. The blue chip company you have stock in should be maintaining their stranglehold of their market and anticipating new trends and threats, but that doesn’t mean they will.

So if you’re sitting at the bottom of your pool, don’t feel bad. If you’re at the top, don’t feel too proud of yourself, either. Monkeys can pick stocks better than many fund managers and they could probably beat you in a bracket any given year, too. It’s all a crapshoot.

Just don’t tell your boss how many hours you spent putting that losing bracket together. The odds of that going poorly are much more certain.

Last time around, I showed the psychological reasons behind the failure of the 401k system. I’m not the type to complain about things without offering solutions, so for this post I’m going to discuss ways to improve the system.

In simpler times, defined benefit plans were the standard, where the worker is entitled to a benefit based on a formula involving a percentage of their pay check and the years they work. Social Security is an example. Your Social Security money is based on the number of years you work and the amount of taxes paid. The payouts are even adjusted for inflation.

From a psychological perspective, defined benefit plans are as simple as it gets. Using Social Security as an example, there is literally one choice a worker has to make: when to start receiving their benefits. It requires no set up and no maintenance by the worker.

There are two problems with this model, though. For one, they’re expensive for companies to administer. 401k’s, relying mostly on the employee’s contributions from their own paychecks, are much more cost effective. Second, defined benefit plans can severely hurt workers that switch jobs, as they typically have minimum vesting periods because the money is technically owned by the company. 401k money is the individual’s and follows them where they go, although some companies that offer matching contributions require similar vesting requirements.

So, ideally, you would like to maintain the flexibility and cost effectiveness of 401k’s while removing the barriers that keep people from being successful in the plans.

First, people need to join the plan in the first place. In one study, Vanguard found that in companies with voluntary enrollment (as in, employees had to complete forms and sign up to enter the 401k), only 59% participated. So, 41% of them were not even enrolled in the 401k plan. It’s possible they elected to do their own personal plan, but it’s far more likely that these employees “never got around” to completing the steps necessary. When you factor in that many of those are likely missing out on a company’s match, too, that’s a lot of money left on the table.

The solution to this problem is easy: switch the default. Instead of requiring employees to do work to get started, automatically enroll them and force them to complete paper work to get out of the plan. They still have the freedom to do something different, but if not, there’s no work to be done to get started saving for the future. How much of an effect does this have? Vanguard saw that switching to automatic enrollment increased participation from that 59% rate to 86%.

The other issue is the complexity of investing. Investing is a complicated subject to the majority of people and most are never going learn the true ins and outs that they’ll need to be comfortable at retirement. However, there are simple options that will cover the needs of 99% of people with minimal effort on their part.

The key elements the average investor needs are low fees, proper asset allocation and performance that at least meets the market averages. There just happens to be a solution that meets all of these requirements: target date index funds.

Target date funds, also called lifecycle funds, are the “set it and forget it” options of the investment world. What they do is automatically adjust the investor’s asset allocation as they get older. So, all an investor has to do is pick a fund targeted at the year they’d like to retire (usually when they will hit 65). The fund will start with an aggressive allocation (90% stocks and 10% bonds, for example) and gradually shift to a more conservative balance as they approach retirement age. When you hear about people who’s retirement savings were wiped out when the market crashed in 2008, it means that they had a stock heavy balance. If they had moved their money to safer assets like bonds in time, the effect would have been minimal. With target date funds, it’s just done for them.

To keep costs to investors low and investment performance adequate, the target date funds should be made of different index funds. Index funds replicate the movements and performance of major stock indexes like the S&P 500. So, the fund will generally provide the same return as the index it represents. Why is this better? Contrary to popular belief, options like mutual funds or hedge funds, which are actively managed by investing professionals, do not beat the market on a consistent basis. In a given year, 75% of actively managed funds will not beat the general market indexes. Over a longer period of time, like the 40 or so years you need to invest for retirement, that number gets closer to zero. If you can’t beat the indexes, join ‘em.

Actively managed funds also charge excessive fees that cut into returns. Paying 2% in fees may not sound too bad, until you do the math:

A study by Demos, a liberal research center, found that a median-income couple that invested in 401(k)’s for 40 years with fees averaging 1.6 percent a year would achieve $354,850 in assets at average savings rates, but only after paying $154,794 in investment fees.

Screw that. I’ll take the returns, thank you.

Implementing these simple steps would have a huge impact on the well being of retirees. It lets people get out of their own way by minimizing their involvement while maintaining a necessary level of performance. It isn’ t perfect, though. Individuals would likely need to increase their contributions past whatever the default minimums would be, for one. But the hardest steps are behind them at that point and they’ve at least gotten started. They’d be 80% of the way there. In my opinion, 80% is a lot better than never getting started at all.

Quick quiz: how much money will you need for retirement? If you know how much you need, are you currently setting aside an amount of money each month that you’ve calculated will get you there?

If so, congratulations. You are in esteemed company and may be able to provide for yourself in your golden years. Most, however, are not in such a position. The average savings for someone near retirement in America is $100,000. A rule of thumb is you’ll need roughly 20 times your annual income saved just to maintain living standards. Assuming you can live on $5,000 a year, that could could work. But, hey, maybe you’ll just die earlier and it won’t be a problem. And that’s just the average. 49% of middle class workers will be poor or near poor at retirement.

Retirement funding is clearly a huge problem. But why? Is it that complicated for people to set aside money from each paycheck to invest and accumulate interest? Well, yes.

In principle, there should be no issue with the 401k system. It’s fairly straightforward: choose a contribution amount, then choose an asset allocation (you might have to learn what that means, first), then choose funds or individual investments to meet that allocation, then monitor their performance as you keep contributing and make adjustments as necessary.

Wait a second…that’s not straightforward at all! Look at how many choices have to be made just to get started. And that’s assuming that investing is something the average American understands. These are complicated, foreign concepts to the vast majority of people, yet they’re expected to trust their livelihoods with them. All of this is simply antithetical to human behavior, as behavioral economist Teresa Ghilarducci points out:

But even putting income shocks aside, she said, most human beings lack the skill and emotional wherewithal to be good investors. Linking investing and retirement has turned out to be a recipe for disaster.

“People tend to be overconfident about their own abilities,” said Ghilarducci. “They tend to focus on the short term rather than thinking about long-term consequences. And they tend to think that whatever the current trend is will always be the trend. That is why people buy high and sell low.” Financial advisers — at least the good ones — are forever telling their clients to be disciplined, to create a diversified portfolio and to avoid trying to time the market. Sound as that advice is, it’s just not how most humans behave.

With the dismal numbers we’ve seen, this seems accurate. It’s clear that something isn’t working.

Some will say this is simply the lazy ones being weeded out and suffering from their own indiscretions and, well, I don’t necessarily disagree. Everyone could spend a weekend reading a good personal finance book and learn about index funds, target date funds and other basic investing concepts that are good enough for the vast majority of people. Or, even better, we could provide more education! Why don’t we learn this stuff in school, anyway?

First, the 401k system has been around for more than 30 years now. If, in those 30 plus years, the majority of retirees never got around to “figuring out” how to invest, I’m not betting the next 30 will be any different. Second, there’s simply no strong correlation between financial education and taking action (which I’ve written about before). Do you think high school kids care enough to learn and apply personal finance concepts? I’m guessing they’re too busy texting and Snapchatting to care about interest rates. Colleges do offer courses on this stuff, but most don’t enroll, as they aren’t a requirement, and most that do don’t take it seriously. Many companies offer education as well, but, surprise, they don’t make any meaningful impact, either. In one study, an employer provided a free financial education program to its employees. They were asked at the seminar if they were interested in saving more and, of course, everyone said yes. However, only 14 percent of them actually joined the company’s savings plan.

Considering the will power required to make this system work, remember, too, that modern financial concepts are very new to us in the grand scheme of things. The concept of retirement itself only came into play in the late 19th century when people started living longer and families became more spread out. The explosion of easy consumer credit is even newer. Our grandparents never had credit cards or the option to spend more than they could afford every day, but now that they do, they’re racking up debt, too. When credit cards gained wider spread use in China over the last decade, debt quickly rose.  Our minds are confronted with financial choices they’ve never had to make before in history. Don’t underestimate the evolutionary impact of that.

It’s important to note that this really isn’t an individual problem. Even if I take care of myself and leave an ample nest egg for my retirement, if the rest of my generation fails to do so, I will feel those effects. When the oldest generation is broke, they lack spending money to put into the economy, they try to stay in the work force longer and the younger generations suffer as a consequence. Obviously, not everyone deserves to be rich at retirement, or even comfortable, but if a majority lack the means just to get by, it’s trouble for us all.

So, if the system is doomed to fail, what can be done to fix it? In my next post, I’ll outline some potential solutions that account for our behavioral weaknesses. Stay tuned.

I discovered James Altucher’s blog last year and he quickly became one of my favorite writers. In the last few weeks on his blog, he’s had a post titled “I Want My Kids To Be Drug Addicts” and told Google he wanted to have sex with it. How could you not love the guy?

Although those may sound sensationalist, his unique perspective and advice on life, happiness, careers, education and many other topics is unmatched. So, I was very excited to finally read his self-published book, I Was Blind But Now I See.

One of Altucher’s best qualities is his complete honesty and willingness to challenge social norms. Early in the book, he discusses what he calls, “The American Religion” and breaks it down into ten “commandments” that make up the accepted external beliefs of our collective. I LOVE what he writes about how difficult it is to challenge these ideas:

If I stand in the center of Times Square, New York City, and said something like “Moses didn’t part the Red Sea” or “Jesus never existed” everyone around me would just keep walking around me, ignoring what I said, etc. Whatever, they would be thinking: I have things to do, very important things that have to get done. And this guy is clearly crazy so not worth my time.

But if I stood there and said, “going to college is the worst sin you can force your kids to commit,” or “you should never vote again” or “World War II was not a holy war” or “never own a home again,” I would probably be lynched on the spot.

It’s a great point. We put up with a lot of crazies every day in this country. When a senator or celebrity says or does something stupid we chastise them and make memes about it and move on. But when someone has the audacity to question the things that we consider rites of passage and symbols of success, it’s like the Walking Dead zombies devouring a horse. Read the comments of any online piece that questions the value of something like home ownership or college. People don’t just disagree, they get angry and offended. Why can’t we question these things?

He goes on to list the commandments of the American Religion and explain why he disagrees with them and what the better alternatives are. I would challenge anyone to read the section and at least not understand why opposing options could be proposed.

The core message and goal of the book is to evaluate what leads to happiness. The section of the book covering the American Religion is about the closely held beliefs that we think lead us to happiness and the powerful forces that reinforce them. Part two is, as he says, “…when we get into the nitty gritty of what happiness really is and how we can find it.”

This is where Altucher starts getting philosophical and shows his strengths. I love his perspectives on life and how to deal with its challenge and successes.

He covers how to start finding what true happiness means to you and how to deal with the obstacles that get in its way. All of the ideas he discusses are things that he has tried himself and found useful. There’s no faking expertise on this subject.

His basic philosophy is that everyone must remain physically, emotionally, mentally and spiritually healthy to achieve happiness and find success. To do this he lays out the Daily Practice, where every day, you make an improvement in one of those four areas (read more about it here). I’ve been incorporating the Daily Practice into my routine and it really does make a difference.

I highly recommend this book. It’s a fresh take on looking at life and dealing with everything about it that tries to pull you down. It gave me a new perspective and forced me to answer some tough questions that I would have otherwise never though to ask. I won’t say that I can “see” yet, but I have an idea of the path to follow to do it.

I’m in the middle of reading Charles Duhigg’s excellent book, The Power of Habit, which focuses on how our habits are constructed and the impact they play in every part of our lives.

One thing I’ve found fascinating so far is the role that habits play for businesses, especially in fast food. Take a look at this excerpt and remember it the next time you crave a Cinnabon in the mall:

Most food sellers locate their kiosks in food courts, but Cinnabon tries to locate their stores away from other food stalls. Why? Because Cinnabon executives want the smell of cinnamon rolls to waft down hallways and around corners uninterrupted, so that shoppers will start subconsciously craving a roll. By the time a consumer turns a corner and sees the Cinnabon store, that craving is a roaring monster inside his head and he’ll reach, unthinkingly, for his wallet. The habit loop is spinning because a sense of craving has emerged.

Maybe Jim Gaffigan shouldn’t feel so bad about eating at Cinnabon (see video below). It’s really some psychological manipulation at fault.

Changing habits and making positive changes in our life has very little to do with our willpower. The human brain can do a lot of amazing things, but it’s pretty awful at resisting temptations that derail us from reaching our goals for health, wealth and everything else.

So successful people know that when they want to make a positive changes, telling yourself, “I’m going do try hard to this” never works. They modify their environments and create systems that force them in to the desired behavior.

So, that’s why I started taking the bus to work this week.

One thing I’ve been consistently frustrated about is the fact that I don’t read nearly as many books as I want. I have a “Books” label in Delicious with 77 tags. None of them have been read yet. The desire is there, but the action has been absent.

I’ve tried building the habit and scheduling time in my day before, but nothing created a lasting effect. One time I tried to create a habit of reading a page a day, no matter what. Another, I told myself I would sit outside and spend 10 minutes reading during lunch time. I also made a bet with my friend that I would read a book in a week, hoping it would force me to start fitting it into my schedule. None created a lasting effect and the stack of books on my “to read” list sat unchanged.

After traveling to Europe over the holidays, I noticed how I devoured books during the long flights and bus rides. It helped that I had a new Kindle to play with (thanks for the Christmas gift, mom and dad), but I’d noticed similar patterns on previous travels. When I travel, I read.

So, I decided to adapt my daily travel so I could read more. I had been taking the metro trains to work every day, but since there are only three stops between where I live and the office, I only had about 5 minutes to read. I wondered if there was a way I could give myself more time to sit still and read while I commuted.

Sure enough, I found a bus that picks up a block from my house and drops off a block from work. It takes a little bit longer. The schedule is much more unpredictable. Traffic can cause delays. The clientele are a little more, well, interesting. But, I have about 20 minutes each way to sit and read during time when I have to be traveling, anyway.

This tweak in my routine could give me three hours of reading time each week. I’m not good at math, but by my calculation, 3>0. The rest of my day remains unchanged.

Think about how changes in your routine can nudge you to better behaviors.

Trying to lose weight? Could you add more walking to your commute? Can you bike to work instead of driving? Could you park in the back of the parking lot so you walk more into the office?

Small opportunities that reap big benefits are all around. Seek them out.

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