20 July 2018
Henk Waninge

Henk Waninge

Henk Waninge - Projective

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Fintech innovation and startups

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Mind the pension gap!

08 May 2018  |  2438 views  |  0

Humans are short-term focused

Ever since we were little, our (grand)parents have been pushing us to save more money for unexpected costs. The funny thing is that although many of us understand the concept of ‘saving for a rainy day’, we are still tempted to spend our money on short-term happiness such as luxury goods, holidays and restaurants. Why do we do this? And do we have a problem?

Let me first calm you down a bit: there is nothing wrong with us and we are not collectively (at least not unnecessary) foolish. We are wired to prioritise short-term issues over long-term goals. This mindset was very useful when we were still nomads living on the fields of Africa, thousands of years ago. Now that our environment is completely changed, our wireframe didn’t adapt enough to cope with this change in living standards[1]. However, this still leaves us with the other question; do we have a problem?

Bigger than Houston: ‘World we have a problem’

This human behavior, to prioritize short-term issues does present us with a number of problems, one of them being a financially unsecure life after retirement. In 2017, the World Economic Forum (WEF) projected a global expected shortfall in pension funding of $400 trillion by 2050[2],[3]. To be fair, China, India and the USA are responsible for $342 trillion. To counter that argument; these three countries account for more than 40% of the global population! So, in short: yes, world we have a problem!

The WEF has six reasons for this huge projected retirement pension shortfall, the key ones being: 1) financial literacy, 2) inadequate saving rates and 3) high degree of individual responsibility. This is where our short-term focused non-planning comes into play: we need to save or invest more! The real question is; how can we overcome our shortsightedness?

Will the government fix it?

Ok, yes our governments have a large responsibility in protecting us from our self-created pension gap (e.g. raise the retirement age). I have two main arguments opposing this ‘wait and see’ tactic. First, we should take responsibility for our own actions. This requires us not to be passive when we make mistakes (short-term focus over future plans) but accept the fact and show assertiveness fixing the problem we created. Be aware, it is mainly our own old-fashioned wireframe that makes you spend your money now instead of investing it for the future. Second, we should have the flexibility to adapt our retirement plan to our own situation. If your government will “solve” the issue, it will have to create a solution that caters to all. Hence not only you!

Can technology help?

The solution lies in our own spending behaviour. Changing peoples’ spending/saving behaviour requires an update of our (financial) wireframe: currently not feasible… Alternatively, we could give everybody an independent financial advisor, but who can afford such a service? Not feasible neither… What if we could pick the best from both solutions and merge them into one?

What if we could update our financial wireframe daily if required? Science fiction you think? Not really; this solution is closer than you think. Proven technology enabled by new regulation already enables us to:

  1. aggregate financial transaction data and assets (PSD2);
  2. integrate with financial service / product offerings (Open APIs);
  3. understand and create long term risk and investment strategy  (deep learning); and
  4. perform and adjust using automated / algorithmic activities (AI).

Next to the financial institutions, we need independent players to help us out. This is where new players like FinTech have a major role to play. Currently there are multiple players with promising service offerings, Meniga, Peaks and Mint just to name a few. Yes, these products do not offer the full use case yet, but these firms are agile enough to adapt to a new market standard and / or other tools will be developed soon. We live in exciting times!

[1] Ronald Wright, A Short History of Progress (2004)

[2] World economic forum – We’ll Live to 100 – How Can We Afford It? (2017)

[3] Based on a 70% income retainment after retirement

 

 

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Mind the pension gap!

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job title Innovation consultant
location Amsterdam
member since 2018
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I advise clients on their digital journey to identify and co-create the optimal solution for their challenges and new market opportunities.

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