Monday, March 20, 2006

Personal Finance Pitfalls

Gen Y (along with every other generation) doesn't act rationally or perfectly when it comes to 401 (k)s. (when we have 401 (k)s. Part of this has to do with the naturally irrational way humans as economic actors perceive risk. It is more important, for example, to avert a loss of $1 than gain $1. (Yes, you read that right; it's all in how you present it). The same concept--debt aversion--holds true when young people are deciding whether to go to college. An NYU real-world trial I heard about today offered two identical deals to law students: you go to school debt-free but you must repay your tuition if you DON'T go into public service, OR you go to school with loans that are then repaid when you DO go into public service. Participation was much higher in the first deal, though costs were the same.

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