But it doesn’t spread the risk well. You can take much more risk when you’re young, because you have relatively little at stake. But when you approach retirement and have much more accumulated, you don’t want to expose a lifetime of savings to the same risk (as we’ve all learnt over the past year or so). A better way to spread risk over a lifetime, then, is to move that 70 per cent growth exposure higher when you’re young and lower when you’re old. The slope of the exposure to growth assets is called a ’glide path’.

And for those who don’t know how to customise a glide path for themselves, the Americans have designed a default glide path that’s based (as a simple, if not optimal, approximation) on how far you are from your target retirement age. It’s called the “target date” approach. That approach would be an improvement in risk control for most Australians. There’s another aspect Australians have got mostly right – roughly 70 per cent of super assets follow the default option offered by their fund of choice.

That’s sensible. In fact, it’s probably too low a percentage! Why? Because most people don’t know nearly enough to make their own investment decisions. You may say: ‘Really? Don’t we all read about this stuff every day? And aren’t there statistics coming out of our ears? What more do we need?’ My answer: ‘A lot.’ Investing is a specialised subject. We don’t expect to become doctors or lawyers or engineers by reading pamphlets and newspapers and doing our own research on the internet. Nor can we become investment experts that way.

It requires a course of study, and experience. In fact, what every country has done is to confuse investment education with financial education. Financial education involves concepts like budgeting. It involves making informed choices when you can’t afford to do everything you’d like. The best thing that you deny yourself is the opportunity cost of doing what you do – saving to achieve that next best thing or borrowing to do it earlier. You need to consider things like the return on saving and the cost of borrowing, and compound interest.

Everyone needs financial education. It’s like meat and potatoes. Investment education is like the icing on the cake. When someone has been starved of meat and potatoes, living on icing isn’t going to be healthy. In every country I’ve seen, the real need is to educate people that the default option is likely to do better for them than their own choices. And with 70 per cent in default options, it’s far too low a number. The third opportunity for improved super is also a global need, and Australia has discovered it.

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