More Wealth & Better Health: Why You Should Change Default Settings

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When I moved into my apartment six months ago, I was eager to find a local YMCA.

For whatever reason, instead of using Google Maps, I asked the complex manager if he knew of any YMCA’s nearby. He told me about one that was located ten minutes away.

Nice, I thought, that’s closer than I expected.

Fast forward two months. I hopped on Google Maps to see if there was a shorter route from my apartment to the gym. I typed in “YMCA” and saw two red dots appear on the map.

One belonged to the location a few miles away that I had been driving to regularly. The other was almost directly on top of my apartment. 

It turns out there is a different YMCA less than two minutes away from where I live. 

Facepalm.

I had accepted the first YMCA recommendation as the default option and had failed to look for alternatives.

Fortunately, accepting the default in this situation didn’t have a detrimental impact on my life. In some cases, though, the options we accept as “defaults” can have serious negative effects. 

The Subtle Power of Default Settings

A prime example of the power of default settings comes from Steven Dubner, co-author of Freakonomics. In this article, he explains why so many people fail to save money through a 401(k) plan:

“One of the reasons that some people don’t contribute to their 401(k) plans is because they usually have to “opt in” to the plan — i.e., actively choose to open a plan, select their contribution percentage, make allocation decisions, etc. Faced with these hassles, a lot of people simple choose not to open a plan.

If, however, the default is switched to “opt-out” — if they are automatically signed up for the 401(k) when they start working for a company, with an option to cancel — savings rates are significantly increased.”

This is the power of default settings. If employees are automatically enrolled, they’ll save money. If not, they’re likely to avoid going through the hassle of enrolling themselves.

Even for most people who do actively enroll, they’re likely to choose the default target date fund that charges a 1 – 2% annual fee.

Granted, this fund will perform better than most investors could do by themselves, but there are still low-fee alternatives to this default investment option that will likely lead to higher returns over time.

The Default Process for Paying Investment Fees

In this interview, financial writer Morgan Housel explains how most investors get screwed because the default method for paying fees is through automatically having them deducted from your account:

“Most investors don’t actually write a check for their fees. They’re deducted from your fund or investment account automatically. When something is so out of sight, out of mind, you don’t pay rational attention to them in the same way you do, say, the price of a gallon of gasoline.

The result is that investment fees may be one of the largest – if not the largest – annual expenses for upper-middle-class households. A couple nearing retirement with $800,000 in mutual funds could easily pay 1% in fund fees, 1% to a financial advisor, and 0.5% in trading and other costs.

So, 2.5% in fees on $800,000 is $1,666 a month – an amount that is very real but for which the customer never actually sees or pays an actual bill. For perspective, the average mortgage payment in America is about $1,300 a month.”

Since fees are taken from investment accounts without sending investors a bill, most people have no clue how much they actually pay in fees each year. This default option of paying 2% + fees is a wealth killer.

What Can You Do?

Most default settings are suboptimal. Fortunately, with a few simple tweaks, you can improve upon them.

Investing: Analyze how much you’re paying in investment fees. Minimize them as much as possible. Personal Capital has the best Fee Analyzer tool I have come across:

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Saving: Make sure your cash is in a savings account that pays close to 1.5% annual interest or higher. I personally use Ally Bank. Don’t let all your cash sit in an account earning zero interest.

Phone Bills: Search for cheaper phone plans. There’s no excuse for paying outrageous monthly bills to the default major players like Verizon or AT&T. I personally use TING and usually pay less than $25 per month. I have heard many finance bloggers recommend Republic Wireless as well.

Smartphone Addiction: I love smartphones as much as the next person, but they can be a real productivity killer. To make your phone less addicting, enable grayscale on your phone by going to Settings > General > Accessibility >Display Accommodations >Color Filters.

Seeing everything in black and white makes apps less addicting. I learned this hack from Tristan Harris, a former design ethicist at Google.

Health: Change the background of your laptop to a picture of nature. Studies show that seeing nature improves your mood. I learned this hack from The Nature Fix. In addition, if you’re someone who stares at a screen all day at work, change the background of your programs to darker colors. Your eyes will thank you.

Reading: When I used to come home in the evenings after work, my default behavior was to watch hours of YouTube. I recently blocked YouTube on my laptop. Now, when I’m bored, I pick up a book. It’s becoming my default choice. I still watch TV and waste time on the internet, but not nearly as much as I used to. 

Do you have any examples of default behaviors you have successfully changed, financial or otherwise? Sound off in the comments below 🙂


My favorite free financial tool I use is Personal Capital. I use it to track my net worth, manage my spending, and keep an eye on my monthly cash flow. It only takes a few minutes to set up and it makes tracking your finances simple and straightforward. I recommend using it.

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12 Replies to “More Wealth & Better Health: Why You Should Change Default Settings”

  1. Thaler actually won a Nobel Prize in Economics for his work on irrational behavior which led to many 401k plans switching their defaults to the opt out requirement. You should check out his book “Nudge” if you haven’t already.

  2. I’ve read that some countries in Europe automatically enroll employees in retirement plans and that’s one of the reasons their savings rates are so high. That’s basically their default which is great.

  3. Great post Zach, love your examples of the YMCA and 401ks. Even the small hurdle of filling out a form or plugging the address into Google Maps can be enough to deter someone from getting started. I published a post yesterday about how we need to make more mindful choices instead of just making the same decisions everyone else makes.

    J.D. Roth had a great quote about this concept: “In life, there are often default options. If you don’t consciously and deliberately choose something different, you get the default. Most people live their lives in default mode. They accept the default without question.”

  4. Great nod to Tristan Harris. I’ve been setting up “barriers” to keep me from using devices mindlessly. I removed all my apps from the home screen and created myself a nice minimalistic wallpaper with a single quote. Now I have to take the extra step of clicking the app drawer button to actually use something. I uninstalled apps that I don’t use at least once a week and all app notifications are off except for calls and regular texts. The grayscale screen really helps!

    More tips on taking control of your phone:
    http://humanetech.com/take-control/

  5. I really like the suggestion to make your phone less addictive! One extreme way I’ve changed my default setting is when my laptop and e reader both died I never replaced them.

    I’m making do without the e reader by using library books and I borrow my partner ‘s laptop when he is not using it. Changing the default is an interesting way to think about everything in my life.

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