You will be able to explain why defaults have such strong effects on what people save.
Look at your payslip and you'll see a chunk taken out for CPF before the money reaches your account. Now ask yourself honestly whether you'd put that much aside every month if the full amount arrived first and you had to transfer it yourself. Most people, if they're truthful, say probably not every month. The CPF money gets saved because nobody has to decide to save it.
A default is what happens if you do nothing. Every money product has one: whether a subscription renews, whether dividends are paid out or reinvested, whether your savings sit in a basic account, whether a free trial turns into a paid plan. Most people, most of the time, stay with the default, even when changing it would take a few minutes and save money.
Lesson 2.4 introduced status quo bias, the preference for leaving things as they are. Present bias, from lesson 5.1, adds to it: changing a default costs a little effort today for a benefit later, and so the change keeps getting postponed. Add a dose of uncertainty about which option is best and the result is predictable. Whatever is set up first tends to stay.
Some of the clearest evidence comes from workplace retirement plans in the United States. In many companies, employees used to have to sign up to join the pension plan. When some firms switched to enrolling everyone automatically and letting them opt out, far more employees ended up saving, and many people stayed at whatever contribution rate and fund the plan had chosen for them, even years later. The choice available to employees was the same before and after. Only the default changed.
Richard Thaler and the legal scholar Cass Sunstein built on findings like these in their 2008 book Nudge. They argued that whoever designs a choice can't avoid setting some default, so the default might as well be set to help people. That idea has since been used by governments and employers in many countries.
CPF goes a step further than a default, because it's compulsory. You can't opt out of contributions as an employee. But part of why it works is the same as with any good default: the money moves before you see it, so you never have to choose to save it and never get the chance to choose not to.
There's a lesson in this for your own money. The saving that happens before you see your pay is the saving that happens reliably. Saving whatever is left at the end of the month relies on there being something left, and on you deciding, every month, to move it. That's the arrangement that lost Darren seven months in lesson 5.1.
You can't change CPF's rules, but you can set defaults for everything else.
A payday transfer is the simplest. A standing instruction or GIRO arrangement that moves a fixed sum from your salary account to a savings account the day after your pay arrives turns saving into the default. A regular savings plan with a broker or bank does the same for investing. Setting dividends to reinvest, where your platform allows it, means money stays invested unless you decide otherwise.
Defaults work against you too, so look for the ones that do. Auto-renewing subscriptions and memberships, insurance that renews at a higher premium without anyone checking it, a card set as the default payment method in every app: each is a decision that keeps getting made for you.
Hui Min listed hers. CPF contributions, helping. A S$500 transfer to her buffer account on the 26th of each month, helping. A regular savings plan into an ETF, helping. Her old unit trust from lesson 2.4, which reinvests automatically, helping in one sense, though she's reviewing the fund itself. Three streaming subscriptions she rarely uses, all on auto-renew, hurting. A travel insurance plan that renews every year whether she travels or not, probably hurting. Her credit card saved as the default in five shopping and delivery apps, hurting, given what lesson 4.1 showed.
She found that the helpful defaults were all ones she'd set up deliberately at some point. The unhelpful ones had mostly been set up by someone else, a seller or an app, and she'd simply never changed them.
Write down every money default in your own life, from CPF to payday transfers to auto-renewals, and decide for each one whether it's working for you or against you.
List the money defaults in your life, such as CPF, payday transfers and auto-renewals, and mark each as helping or hurting.
Junxiong-WFG Organisation is an authorised representative of AIA Financial Advisers Private Limited (Reg. No. 201715016G).