Dumb and Dumber: the 401(k) Debit Card
by Richard
Nominations are now available for the stupid human trick of the year award.
It would be hard to beat the multi-taskers who are texting while driving, but since this is a wealth management blog, we need to narrow the category accordingly, or we will be inundated with candidates. (If your humor runs to the dark side, though, you may want to check out the antics at the Darwin Awards.)
My runner-up choice would be the placement of ATMs at the Vegas casinos. It greatly facilitates the descent into destitution, by adding a slick convenience to delusional madness.
Never give a sucker an even break. The mantra of our times.
Direct Withdrawals from your 401(k)
But my top choice would have to be the idiots who developed the 401(k) Debit Card, not to mention those who actually end up using it. See “Critics Detail the Ills of 401(k) Debit Cards” by the Wall Street Journal. (7/22/08, D6)
You have to appreciate the sheer gall and perverse audacity in devising such a devilish means of destroying your retirement wealth.
Rather than go to the trouble to fill out a loan application to raid your funds, which may give one pause and time to reflect on the harm they are contemplating, all impediments are removed.
Low-Yield + Incentive to Consume= Bad News
Step one is to convert the equity portion of your portfolio to low yielding money market funds, so that the debits will draw down good funds, exactly as if it were a personal checking or savings account.
Already we have committed grievous error. Equities can compound at 10% annually when invested across asset classes, but cash will usually return just a small fraction of that return.
Worse… we have unleashed the hounds of consumption. Like the lady who tried to tap her home equity line of credit to buy household furnishings, we now mimic the behavior of compromising and risking our most valuable of long term assets to satisfy the most ephemeral and ethereal of our impulse purchases.
Make no mistake about it, investment and consumption are like two scorpions in a bottle. In order for one to be victorious, the other must be vanquished.
Spend, Spend, Spend…
We have conditioned our population to be world-class consumers, bombarded by endless messages to mindlessly acquire depreciating assets.
Even our government, in the act of sending out tax rebate checks, does so for the express purpose of priming the pump with more consumer spending.
Or worse. Such as having the government pimping the gambling industry through its promotion of state lotteries.
I think I am beginning to experience compassion fatigue. I don’t know how to feel sorry any more for those who cannot understand the difference between spending and savings.
Something very ugly looms on the horizon. There will one day be an angry army of aging and improvident baby boomers at the barricades when the spigot for entitlement spending is inevitably dialed back. The math is both unyielding and undeniable.
Due to their sheer numbers and voting heft, the result will be trench warfare between productive workers and idled retirees.
But they will always have the fond memory of the video games and shiny trinkets they bought when they tapped their 401(k) accounts using their nifty debit cards.
Back in the day.
