Welcome Letter

Welcome Letter for the New Online Research Site, Trends in Savings & Wealth

Prof. Joseph Stiglitz - Columbia University, 2001 Nobel Prize Winner

Decisions about how much to save and how to invest those savings are among the most crucial financial decisions that most people will make in their lifetime. These decisions will determine material well being and personal fulfillment to a surprising degree, including whether one is able to purchase a home for one’s family, pay for the education of a child, provide for a comfortable retirement, launch a new business, and perhaps transfer financial comfort to one’s children. Major changes are taking place these days in our understanding of the saving process. We are rapidly gaining new insights into human motivations to save, including common psychological hurdles that sometimes may need to be overcome, like procrastination and inappropriate discounting of future consumption. We are also gaining an understanding both of how individuals perceive and respond to risks—including important instances in which they have difficulties estimating such risks (and the correlations among risks) accurately. Limitations in understandings about markets (including the complexities of financial markets) may impede the ability of individuals to make wise decisions. All the while, financial engineering continues to evolve and is making more investment strategies possible at the same time that transactions costs are being lowered. These developments may increase the array of choices facing individuals, but also simplify decision making.

These developments also make it all the more important to expand the process of education of individuals on the choices they face and their consequences, if we are to empower savers to make choices that reflect their long-term goals.

The consequence of these developments is that this is an exciting time to be researching the saving/investment process. This is exactly where the new online research site, Trends in Savings and Wealth (TS&W), aims to makes its contribution—by bringing together behavioral economics, the economics of information, the study of regulation, and traditional microeconomics and finance—to try to provide thought-provoking new ideas and solutions out of this blend.

For the past four years, it has been my privilege to serve as an outside adviser to Pioneer Investments, in its attempt to understand the savings/investment process so that it can provide products that are better suited to the needs of its customers. Pioneer, of course, has not been motivated just by public service, but by a belief that if it can devise such products, it will be more successful. But Pioneer also believes that a wider understanding of the investment/savings process will create an environment in which innovative products responding to these needs are more likely to succeed. That is why it has decided to sponsor this new research site, hoping to elicit contributions from a wide variety of disciplines whose studies enhance our understanding of the savings/investment process.

Over time, I look forward to a series of thought-provoking articles that will report fresh research on our understanding of motivations for saving, the best ways to help people achieve their saving goals, and the best financial strategies for maximizing saver long term well-being. I am especially excited about a format that is accessible to academics and financial practitioners alike. I believe that dialogue between these two normally separate groups will be important for the advancement of both theory and practical saving tools. I extend to TS&W my best wishes for every future success.