This is part 12 of a series of articles featuring the book Beyond Connecting the Dots, Modeling for Meaningful Results.
Why Aren’t We All Rich?
If one can put money in an investment account that grows over time, and grows even faster with regular deposits, why aren’t more people rich and ready for retirement? I’ve started numerous retirement programs through the years, but for one reason or another they’ve all evaporated in time. What is the basis of this sad state of affairs? “Why Aren’t We All Rich?” investigates some of the reasons behind this.
Soft influences are often not very obvious, even though they can have a major influence.
Need help? See the Model instructions
We now have a model that provides some incentives to start and continue to deposit money in an Investment Account. We also have disincentives toward withdrawing funds. However, have we really addressed the initial situation posed? Not really. There are incentives for starting the Investment Account and regularly depositing money. For many these incentives are enough to get them to invest. For others, for one reason on another, the incentive is not sufficient. For those people, additional or more strict incentives would likely be looked on unfavorably. People do not like to be manipulated, even when it is for their own benefit. The penalty for withdrawal is a deterrent in some respects, though as the Investment Account continues to grow, its attractiveness in terms of what it can purchase continues to entice. The best answer for this situation is to legally tie up the withdrawal process so it’s only an option in the case of dire emergencies. Though as much as people find being manipulated by others distasteful, being controlled by themselves is just as distasteful.
Is the model done? As usual, the answer is; “It Depends!” If it has provided sufficient understanding to address the situation posed, then it is sufficient. If not, then it should be taken further. NOTE: once it is sufficient you should STOP!
|There is a logic flaw in this model which you might try to repair. The Penalty is not actually taken from the Investment Account, but from the Withdrawal itself, so it reduces the amount you actually get from the Withdrawal. Be warned that this might be a tricky fix.|
Next edition: Developing understanding: Models 8-9.
Header image source: Beyond Connecting the Dots.