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Fuel or Friction?

Richard Connor

I RECENTLY LISTENED to an interesting Hidden Brain podcast discussing different ways of bringing about behavior change. The guest on the podcast was Loran Nordgren, a professor at Northwestern’s Kellogg School of Management and coauthor of a book entitled The Human Element. The discussion centered on two related concepts: fuel and friction.

Fuel is the stuff we use to motivate ourselves and the people in our lives. It can be positive or negative. Let’s say you’re an employer trying to get employees to save more in the retirement plan. To fuel their participation, you might explain the benefits of compounding, tax deferral and the employer match.

Friction is the stuff that produces drag—things that hold us back or create obstacles that prevent us from acting. Continuing with the example above, a website that’s hard to navigate could prevent employees from signing up for the company’s 401(k) or increasing their contribution.

Nordgren contends that, “Removing friction is often more powerful than increasing fuel.” He provides a variety of interesting and amusing anecdotes to support his thesis. One of my favorites stories was a self-acknowledged failure. Nordgren described how, despite many attempts at fueling, he couldn’t convince his 95-year-old father to get a cell phone. He concluded he’d have been better off finding a way to make it easier for his father to embrace technological change.

I’m a big fan of reducing friction in our financial lives. Today’s technology makes this easier than ever. Here are my favorite ways to reduce financial friction:

  • Automate savings. Thanks to direct deposit, it should be simple to direct some of your paycheck to your savings goals, as well as to your regular checking account. My wife and I have both a checking account with a brick-and-mortar bank and an online savings account. They’re tied together so I can transfer money between them if required.
  • Automate bill paying. Again, the banking technology is available to automate most or all of our regular bills. Some companies will even give a discount for automated payments.
  • Automate retirement savings. Sign up for your employer’s retirement plan, being sure to capture at least the employer match. Better yet, try to save a little more than you’re comfortable with, and see if you can learn to live on whatever remains of your paycheck.
  • Automate transfers to an investment account. This has become very easy to do. Once you’ve established an account, also be sure to automatically reinvest your dividends, so you acquire even more shares.
  • Automate withdrawals. We have cash investments in my IRA from which we take planned monthly withdrawals. This is new this year, and I’ll monitor this to see if it’s the right amount or if we can hold less cash. If it proves insufficient, it’ll tell me we’re spending more than I realized.
  • Automate debt payments. If you have a mortgage or other loan, many companies will offer an interest rate reduction for automatic debits.

During our working years, my wife and I tried to automate our saving and investing, leaving a relatively meager amount in our paychecks for us to spend. I wouldn’t recommend making it so tight that you end up with credit-card debt. But make it meager enough so that you have to think hard about that next splurge.

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SCao
1 year ago

I really like this concept of Fuel vs. Friction. Thanks for sharing, Rick.

Edmund Marsh
1 year ago

Rick, thanks for a great article encouraging us to make our lives easier.

Rick Connor
1 year ago
Reply to  Edmund Marsh

Edmund, thanks for reading and the kind words.

Rick Connor
1 year ago

David, thanks for reading and commenting.

David Powell
1 year ago

That was a superb HB episode and a really useful book! Great piece, Rick, for finding and “hacking” friction in our financial lives thru automation.

R Quinn
1 year ago

Use or have used them all. Less stress too. Frankly I’m fascinated by the technology and how it’s all integrated.

I like to use Zelle too. In those rare cases we had to write checks, I just ask for their cell number and text the money to them. I’m happy and they have their cash in seconds, guaranteed. No more “the check is in the mail.”

Too bad this level of integration doesn’t apply to our healthcare system.

Rick Connor
1 year ago
Reply to  R Quinn

Dick, thanks for reading and commenting.

mytimetotravel
1 year ago
Reply to  R Quinn

There have been complaints about fraud and lack of consumer protections with Zelle. Summary here. I have chosen to do NO financial transactions on my phone. For one thing it’s an Android, and I try to keep Google from accessing my data, for another, the protections on my desktop are a lot better.

Rick Connor
1 year ago
Reply to  mytimetotravel

Thanks for reading and the good info.

R Quinn
1 year ago
Reply to  mytimetotravel

I almost sent money to the wrong person – the wrong son, but I caught myself. Now, would I have gotten the money back?🤔

mytimetotravel
1 year ago
Reply to  R Quinn

From what I have read, no. You would have been held to have authorized the transfer. Unless you are asking whether your son would have returned it.

M Plate
1 year ago

This fuel vs friction concept brings real clarity to…just about everything in life. Its quite moving.

Rick Connor
1 year ago
Reply to  M Plate

Thanks for reading and commenting.

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