Fixed: Why Personal Finance Is Broken and How to Make It Work for Everyone

"Problems with personal finance used to be a big part of the public policy debate but have faded in recent years. That is not because they have been solved, but because people forgot the financial crisis and moved on to other topics. Returning to this topic feels like a blast from the past. But it also is exciting and refreshing to see it addressed with such originality and cutting-edge research. At its core, the book is about the persistent fragility of household finances and why market forces alone don’t fix it. Drawing on evidence from the United States, the United Kingdom, and India, John Campbell (another colleague of mine) and Tarun Ramadorai show that financial illiteracy is widespread and remarkably persistent. This wouldn’t be quite so troubling if financial markets were forgiving, but they aren’t. Instead, complexity, hidden fees, and product design often exploit consumer weaknesses rather than accommodate them. I should say I’ve read a lot about this topic, but was still shocked at some of the questions people often get wrong, including: if you earn 2% interest on $100 over five years, how much do you end up with? The correct answer was “More than $102”—it didn’t even require understanding compounding. These errors do not simply reflect lack of education but are undergirded by behavioral biases in thinking about the future; the lack of reinforcement learning when financial decisions have consequences decades later; and the social fact that people talk about personal finance even less than sex (the authors’ observation, not mine!). Companies, of course, don’t suffer from these issues, and their complex, opaque products—with bundling, hidden fees, and other traps—are often designed to exploit them. The authors make a compelling case that education runs up against structural barriers. People are present-biased, feedback arrives decades later, and personal finance is socially taboo—people talk about it less than sex. Firms, by contrast, face none of these constraints and can systematically design products that take advantage of consumer mistakes. Nudges help in some contexts, but they often suffer from leakage: improving outcomes in one account while worsening them elsewhere. That limits how much we should expect from light-touch interventions. They argue for more active regulation, closer in spirit to the original mission of the Consumer Financial Protection Bureau. In some cases, that means moving beyond nudges to what they provocatively call ‘shoves.’ One intriguing idea is a publicly designed, regulated personal-finance starter kit that households could default into—simple, transparent, and hard to exploit. The book feels both very current and like a revival of post–financial-crisis debates about consumer protection that have faded more than they should have. Nothing."