You're On Your Own

By Daniel Kadlec

Choice is good. We Americans consider it a measure of our freedom and a source of our innovation and prosperity. Riches flow to the person who builds a better mousetrap--or computer mouse. Yet a grocery shopper blankly staring at hundreds of varieties of toothpaste might reasonably conclude that there can be too much of a good thing. Mark Lepper, a psychology professor at Stanford, and Sheena Iyengar, an associate professor of management at Columbia, illustrated this point with a simple study. In a grocery store, they set up tasting booths that offered either six or 24 types of jam. Shoppers found the wider selection more enticing: 60% who passed it stopped and tasted, while only 40% stopped at the booth with fewer flavors. Yet the wider selection was confounding; just 3% who sampled there bought anything, while 30% made a purchase at the other booth.

The tendency to feel overwhelmed and do nothing probably saves us money on jam. But it is becoming increasingly dangerous as society hands us more and more responsibility for vital and complex decisions about our savings for college and retirement, our family's health care and the providers of utilities ranging from electricity to cellular-phone service. Responsibility is always the price of freedom. But we are now responsible for so many decisions requiring so much homework that many of us feel helpless and paralyzed. The risks of inaction or unwise action are rising, even as many of the professionals on whom we would like to rely for guidance are proving untrustworthy and even corrupt.

Then came Enron. What makes this case so scary is that the shady ethics and the deception that suddenly bankrupted one of the world's most innovative companies have become pervasive--and much of it is legal. It's not unreasonable to fear that the next Enron could be lurking in your 401(k) account or paying your salary. If the corporate directors and auditors and stock analysts who were supposed to be looking out for the interests of shareholders at Enron could be bought off with consulting and underwriting fees, we know they are probably being bought off elsewhere too. From 1998 to 2000, 397 publicly traded companies had to restate their financial results, and big firms like Sunbeam and Cendant have paid to settle shareholder suits alleging fraud.

The social safety net for the unemployed is not the only thing that the government has loosened. It has also pulled back from the regulation of business. That's a direction we have chosen through our own elections, and in many ways it has served us well. But what we didn't anticipate was the degree to which lightly regulated companies would be able to corrupt the professionals on whom we have relied to guide us through complex financial and medical matters and to look out for our interests. We now know that we can't trust stock analysts and financial planners, who often get paid more for selling us shaky stocks and mutual funds than for selling us solid ones.

For several months after Sept. 11, Americans have felt ourselves pulling together. But the Enron scandal has shown us or perhaps reminded us that when money is involved, we are truly on our own.

Consider retirement. In 1985 the number of U.S. companies offering guaranteed pensions to their workers was 114,000. Only 38,000 did so in 2000. Filling the gap are 401(k) and other employer-sponsored plans that have introduced millions of Americans to the benefits of stock investing in the 1990s and created many millionaires, at least on paper. But these savings plans don't guarantee anything. Future benefits depend on how wisely we invest--which looked pretty easy until the market turned south two years ago. Now we are learning how much we don't know about risk and diversification and how poorly equipped most of us are to choose among 8,282 U.S. mutual funds. The yearning for reliable advice is so widespread that a Charles Schwab commercial shows a family doctor who makes a house call (remember those?) and winds up giving investment advice. "Wouldn't it be nice," goes the ad slogan, "if the person you trusted most was your financial adviser?"

Homeowners, meanwhile, must figure out whether they are better off with a traditional 30-year fixed-rate mortgage, a straight adjustable rate or a 3/1 hybrid. Parents must decide whether they should save for college in a Section 529 plan (who on earth names these things?) or a Coverdell ESA. We all want Marcus Welby for our doctor, but he is not among the options offered by our employer. Instead, we must choose among an HMO, a PPO or a POS. And if we lose our jobs, we must learn to get insurance through COBRA. Read a 4-in. pile of paper, and call me in the morning.

We are accustomed to having our dinners (not to mention our HMO homework) interrupted by the peddlers of long-distance phone plans. But now they have been joined by folks pushing wireless service and, in more and more communities, by sellers of competing local phone service. As a result of the deregulation movement championed by Enron, some Americans must choose among competing electricity suppliers. If you pick the cheap one, does the power go out more often? Who knows? And to access the wonders of the high-speed Internet, heads of household must choose among a cable-TV modem, a DSL phone line and a satellite link.

Having such choices should be a blessing. And we would probably see it that way if we could somehow manage to schedule one gnarly piece of homework at a time--or get some reliable help. What's the answer? Some call for more government oversight. For now, responding to the anxiety in the air, Republicans have set aside their plans for private investment accounts for Social Security. In the long run there is no turning back this age of self-determinism. Sooner or later, your Social Security income will be partly a function of how well you choose stocks--and in many other areas too your choices will make or break you.

Some cope by focusing their research not on the best investments or health plan or broadband provider but on experts to guide them--preferably friends or colleagues, but failing that, professionals paid in a way that puts them on your side, not serving someone else's agenda. The following articles examine three areas in which research is often the most daunting--investing, health care and wiring your home--and offer some helpful resources. So do your homework. The choice is yours.