Revamp Your Future: How to Beat the Default Bias Effect

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super, money mindset, personal wealth

Revamp Your Future: How to Beat the Default Bias Effect

Aug 28, 2024
money mindset super

Imagine two groups of people choosing a car rental. Group A is told they can choose any colour they like, but if they don't make a decision, they'll receive a red car. Group B is given the same deal, but if they don’t choose, they'll get a blue car. What happens? Likely, Group A will end up with a lot of red cars, and Group B will end up with blue ones. This phenomenon isn’t about preferences; it's about default bias.

 

What is Default Bias?

Default bias is the tendency to stick with pre-set options rather than actively choosing something different. This bias plays a significant role in many areas of life, including superannuation. Many people find themselves in default super funds with default investment options and default insurance levels simply because they haven’t actively chosen otherwise. This can have major implications for your financial future.

 

How Default Bias Affects Your Super

When it comes to superannuation, default options can be convenient, but they may not always align with your personal financial goals or risk tolerance. Default investment options are designed to be suitable for the average person, but "average" might not fit your unique situation. For example, if you’re younger with a higher risk tolerance, a conservative default investment may not maximise your retirement savings.

 

The Regret Minimisation Factor

Another factor at play is regret minimisation. Many people feel less regret about not making an active choice because it seems less like a personal failure. If the default option underperforms, there’s a tendency to think, “Well, I didn’t choose it; it was just the default.”

 

Actively Managing Your Super

Managing your super doesn’t have to be overwhelming. Start with simple adjustments and consider more detailed planning later. If you're in a default insurance option, assess whether the coverage meets your needs. Default insurance might seem adequate, but it could fall short when you consider the costs of your mortgage, daily living, or care needs if you become disabled.

 

To get a clearer picture, compare your current insurance coverage with what you might need using an insurance calculator. If there's a significant gap, you might only need to adjust your insurance coverage slightly to better protect your family.

 

Steps to Take

  • 💰 Review Your Investment Options: Ensure your superannuation investment aligns with your retirement goals and risk tolerance.
  • 💰 Check Your Insurance Coverage: Use an insurance calculator to assess if your current cover is sufficient.
  • 💰 Make Active Choices: Don’t settle for default settings. Take charge of your super to better suit your needs and future goals.

 

Superannuation is an area where proactive management can make a significant difference in your financial future. By understanding and overcoming default bias, you can ensure that your superannuation is working effectively towards your retirement goals.

 

Book a complimentary call with the Life Sumo Team to get personalised advice for your circumstances.

 

This provides general educational information only. The content does not take into account your personal objectives, financial situation, or needs. You should consider taking financial advice tailored to your personal circumstances. Life Sumo (Orion Enterprises (Cairns) Pty Ltd) has representatives that are authorised to provide personal financial advice.

This article provides general educational information only. The content does not take into account your personal objectives, financial situation, or needs. You should consider taking financial advice tailored to your personal circumstances. Life Sumo (Orion Enterprises (Cairns) Pty Ltd) has representatives that are authorised to provide personal financial advice. If you would like personalised advice - please click here to talk with our team.

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