How UX Design Relates to Financial Literacy and the U.S. Government

In software development, modern UX philosophy says: if your target audience can’t “figure out” your software, it’s your fault as the designer — not the users. I’d argue the U.S. Government has severely failed this test in how they’ve designed the financial tools and domain we, the public, must rely upon. The basic example I put forth is a tool for retirement savings:

The mythical 401k and Roth IRA.

Years ago, the common response to a confused user might’ve been “well, they haven’t taken the time to learn it” or “it’s so obvious, they’re just stupid”. UX Design teaches us that there are no “dumb” users, only those we haven’t empathized with or considered in our design. If we make a conscious choice to design for “power users”, that’s okay — but if our intent is for the “average user” to be successful, and they’re not, then we have a problem.

The goal of a 401k is to encourage saving for retirement by deferring taxes on money invested in the account until it is withdrawn at old age, leading to higher capital gains overall. I’d argue the retirement accounts defined by congress are abysmal from a UX Design perspective, leading to a monumental failure of understanding by the public and, as a direct result, far fewer people saving for retirement than otherwise could have if properly educated.

You Don’t Have a Clue

The Least Descriptive Names Ever

The term “401k” means absolutely nothing before you explain it, and provides no value whatsoever towards one of the primary goals of UX design: helping the user quickly and innately understand what something is, and what it’s for. The Roth IRA also fails this test.

In fact, when the 401k was first introduced in 1978, it was done so silently — Congress didn’t give a shit if anyone knew it existed, they decided the work was done when they added it to the tax code and said nothing more. Do they actually believe the public reads the tax code, let alone updates they publish?

It wasn’t until two years later, in 1980, when a benefits consultant named Ted Benna took note of the obscure provision and figured out that it could be used to create a simple way to save for retirement and avoid taxes.

Benna says inspiration came from two different places: God (he’s a religious man) and the Internal Revenue Code. It was 1978. Congress passed an obscure add-on to tax code section 401.

“Added this little paragraph ‘k’. And I still have, you know, the original copy. It was only a page and a quarter long. That’s all it was.”

Benna was the guy who came up with the idea of the “employer match” — you know, when an employer decides to match some of your contribution to the 401k. That part actually wasn’t in the tax code, but nothing stopped it, and this idea spurred the adoption of the 401k and converted many who previously spent all the paychecks they received into people who saved for retirement.

The Roth IRA was established by the Taxpayer Relief Act of 1997 and named for its chief legislative sponsor, Senator William Roth of Delaware. It was created for no other reason than to have yet another way to avoid paying taxes — with a different set of rules, advantages, and disadvantages, while saving for retirement. To determine whether a Roth IRA or 401k is better for you is a monumental task — they’re both good, but there’s a lot of questions and math required to determine which is “best” in each individual situation.

A Lifetime to Understand

Most people don’t know what a 401k — or a Roth IRA — is. If you’re one of the lucky few who do, I have news for you — you don’t fully understand these financial tools. Most financial advisers probably don’t. For example, here’s one common question asked about Roth IRAs:

See my point?

Now, if all this was simplified to a single “Retirement Plan” with simple rules: You can save up to $10,000 per year towards retirement tax-free. That’s it. Hundreds of rules and regulations and exceptions are eliminated. Everyone is encouraged to take advantage of the plan, which is explained through simple one-page documents you receive when you sign up for a social security card at age 18 — and available on the IRS’s website, which fits on an 8x11 page.

I guarantee, with the right UX approach, you’d be able to double the number of people who save for retirement.

The Unfortunate Truth

There’s a reason none of this is likely to happen. The reality is that, while the average american would be better off if they saved for retirement, our society as a whole revolves around heavy consumer spending to fuel economic growth. I’m uncertain that having everyone save for retirement would actually be a positive force in our economy — it’s possible it would, given that money saved for retirement is almost always invested in the stock market, which provides funds for companies to use to grow, but it’s also possible that hurting consumer spending to the tune of 5–10k per person, per year would cause widespread economic recession. I’m not an economist, and I doubt anyone could say for sure, but I fear one reason this whole mess is unlikely to change is because of this unfortunate truth about our economy.