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Transcripts

November 13, 2003

Host: Michael Grant
Topics:
· Reforming Social Security;
· Living wills;
· ASU study of frugal behavior
In-Studio Guests:
· Dr. Jose Pinera, former Chilean Minister of Labor;
· Dr. Gillian Hamilton, Co-Director of Healthcare Decisions;
· John Lastovicka, ASU Professor Marketing

 

>> Michael Grant: Tonight on "Horizon," we all look forward to Social Security when we retire. Tonight we talk to the man who privatized Chile's Social Security system more than 20 years ago.

>>> You may have heard of living wills, but there are many other ways you can let your wishes be known if you become incapacitated. We'll tell you more.

>>> Finally, research done by an ASU professor on how to be frugal. Good evening, I'm Michael Grant.

>>> Before we talk to our guests tonight, we have this headline. The state legislature is expected to work late tonight on a Republican-sponsored private prison bill. The bill would shift 1600 state inmates to private out-of-state prisons, paid for by a $1,000 increase in DUI fines and $7 million dollars from sin taxes that go into a corrections fund. So far, the bill has passed the House and Senate judiciary committees, and is expected to go through the House Appropriations Committee as well as the Full House. The bill has been amended to allow the Department of Corrections to compete with private prison companies.

>>> In 1925, Chile became the first country in the western hemisphere to convert to a pay-as-you-go Social Security system run by the government. In 1980, the system was privatized. The man who accomplished that is Dr. Jose Pinera, the former Chilean Minister of Labor. He now speaks out on Social Security privatization for the Washington D.C. based group "For our Grandchildren." Dr. Pinera is also founder and president of the International Center for Pension Reform. He joins me now to talk about Social Security reform. Dr. Pinera, welcome to Phoenix.

>> Dr. Pinera: Thank you very much. I'm happy to be here. You are similar to my country. We produce copper as you do.

>> Michael Grant: You were here on behalf of the Council for our Grandchildren?

>> Dr. Pinera: I came sponsored by them to speak at the Phoenix forum.

>> Michael Grant: In 1980, you moved through the privatization of the Social Security system in Chile. Was there any particular set of circumstances that drove you to that change?

>> Dr. Pinera: Not a particular set. Government systems are going bankrupt all over the world because of demographic trends. People are living longer lives. They are having less babies and the pay-as-you-go system, the tax and expense system that Chile has and America has and Europe has, depend on younger workers paying the FICA tax to support the elderly. So what we did in Chile was to say why not let people opt out of that system and have personal retirement accounts, so that the FICA tax, instead of going to the government, go to your own passbook account and you accumulate money with compound interest during 40, 50 years of your life that grows exponentially, and when you reach 65, you don't look for a government but you look at your huge capital in your own passbook account. That's an idea that was introduced in Chile 22 years ago.

>> Michael Grant: Does the government control the account? The individual directs it, but can the individual get to the money or is that access still restricted prior to the authorized age of retirement?

>> Dr. Pinea: No, the individual cannot take the money before the age of retirement, because of course, this is money for retirement. What the government does basically is ensure a safety net to everybody and at the same time legislate prudent rules of management. That is we don't allow people people to put all of the money in stocks, not to mention in one stock. You have to have a diversified portfolio of bonds, certificates of deposit, shares, foreign investments. So when you have a thousand invested in Triple-A categories, the return can go up and down, but you can never lose your money. And in 22 years, the Chilean workers have never lost a peso and the rate of return has been around 10% above inflation for 22 years. So you can imagine how money grows with a 10% rate of return above inflation for such a long period of time.

>> Michael Grant: I have a notation here, United Nations program for development 2000 report on Chile shows that at least half of the 6 million workers in Chile will get no benefits for retirement except $35 per month in welfare. It states another 25% will have to rely on the minimum pension guaranteed by the government. That would seem to indicate that some participants in the program are not getting very good bang for their buck.

>> Dr. Pinera: Well, I don't trust very much the U.N. reports neither on economics nor on foreign policy or a lot of other matters first of all. The report by the economic institutions like the World Bank, the IMF and the OACD, they are all recommending this system to the rest of the world, and now that number is interesting to mention that one thing is that all employed workers are covered by Social Security, but in Chile before this reform, we did not have a mandatory system for self-employed workers. What they are saying is self-employed workers are not covered by this system and that's true. They are not covered by the other system, probably because they are saving with more companies or they are saving in 401(k)s or whatever.

>> Michael Grant: For a self-employed worker, do you have other programs in Chile similar to ours where you are allowed, for example, individual retirement accounts, Keogh plans, those kinds of things separate and distinct from the Social Security System?

>> Dr. Pinera: Exactly. That happens also.

>> Michael Grant: Is your self-employed -- these numbers -- that was a fairly large percentage. Are there a lot of self-employed workers in Chile that could account for that high a rate?

>> Dr. Pinera: No, not only that, what happened is those reports don't understand the philosophy of the program. If you are a woman and you are working, you can withdraw from the labor force because of any reason and during the month that you are not working you are not contributing. So they are counting there anyone who is not at that month, that moment of time in the work force contributing. But that doesn't mean that in a period of 45 years those people will not be adding money to their accounts. It's a different concept, you see. You have 45 years to add money to your account, that is tax free also, the money you put there. So if you are having a 10% real rate of return, how could you not have a good pension? That is the real number that should be seen. If you are saving with a 10% real rate of return, how could you not accumulate enough money for retirement, unless you don't want to put money into your account? But this is a system based of course on responsibility, on individual freedom, and we allow people either to have these accounts or maybe invest in other financial assets.

>> Michael Grant: Certainly one of the concerns articulated here most frequently -- let me get back to the investment aspect of this, is that people will make bad decisions about their investments, and they won't have that 10% rate of return. How do you respond to that?

>> Dr. Pinera: I respond to it in two ways. First of all, as I said, the choices are limited to a very diversified portfolio. What the workers chooses is basically the manager of their account, and they choose a fund that will be more aggressive, 50% share, 70% share, 30% bonds or less aggressive. They don't pick stocks every morning, of course, they make the decision to invest with professionals and give them a guide first of all.

>> Michael Grant: Is it the individual who is doing that or is it the government doing it?

>> Dr. Pinera: It is the individual who is doing that within a framework in which you cannot put all of the money as I said entirely in one stock or one bond. The government puts a framework of prudent rules of management. And within that framework, the individual can choose. For example, young people choose a portfolio that has more shares than bond. My friends who are already 55, they begin to move towards bond focused portfolios. And for example, I recommend anyone in Chile, when they are 58, they move to a fixed income portfolio so they sleep well the last 7 years of their working life. Even though the stock market may go down, they will not be effected whatsoever because at 56, 57, 58, they went out of the market. So the common objective, what happens the day you are 65 that day the market goes down, that is not how people behave. Responsible people can make choices, because it's very dangerous to say that they don't know how to make choices because they have to vote. If they cannot choose a portfolio of five choices, how can they choose presidents, senators, sheriffs, judges and all of the people they choose? There is a dichotomy there. There is a big distrust of the individual, and I tend to trust the people.

>> Michael Grant: What about the fee structure? It obviously costs quite a bit to run the Social Security system, just in terms of moving the money in, moving it out, those kinds of things. What about similar costs to administer the Chilean system? Are they comparable? Less?

>> Dr. Pinera: The congressional budget office of the U.S. has done a study and they concluded that the cost is 1% of assets managed. Very similar to what a major fund in the U.S. will charge. There are some who charge a little less, but 1% is reasonable. If you get a rate of return of 10% above inflation, and then you subcontract 1%, you still get a 9% rate of return. So that is not an issue whatsoever, and with the advances in information technology, managing small accounts and so on, that cost has been coming down and will go down even further in the future. >> Michael Grant: Certainly one other thought that occurs, the United States is a much larger country than Chile, many more people participating, many more people's accounts to administer, do you think we would have the same kind of cost experience as Chile?

>> Dr. Pinera: No, you will have much lower costs because there is economies of scale in this. To manage accounts of people who have a per capita income that is five times the one of Chile, by definition, you will have more money in similar accounts, because you are a much, much richer country. Therefore, there are economies of scale. The administrative costs in U.S. with all of the experience you have in financial markets would be much lower than in Chile. In a country like yours with a tradition of 401K(k)s, with the tradition of the best capital markets in the world with all of the computer technology that you are developing here, I believe the system would work even better than in my country when we begin it 20 years ago with much worse computing technology.

>> Michael Grant: Dr. Pinera, we appreciate the information. Please enjoy your stay in Phoenix.

>> Dr. Pinera: Thank you very much.

>> Michael Grant: Former Phoenix police chief Ruben Ortega lost his wife Nellie to ovarian cancer last year. A living will made it easier for the family to make the difficult choices at the end of someone's life. In a moment, we'll talk more about living wills and other "advance directives." But first, we hear from Ortega and his daughter about their experience.

>>Ruben Ortega: Well, we were fortunate, I think to some degree that we knew a little bit about living wills, and we had established one. And I had discussed with Nellie what she wanted, and how each of us would feel if we were incapacitated and couldn't communicate what we wanted. So we pretty much set down advance directives for each other. I knew what she wanted and did not want, which was probably more important, and it came a lot easier that way towards the very end. Particularly when she got so tired of being taken to the emergency room that towards the end she says, if I develop another fever and if I start vomiting and whatever, don't take me. I just want to stay here, and I don't want machines all over me. I don't want to be resuscitated. I just suffer too much.

>>Karen Ortega Matson: The last place you want to find yourself in is trying to make those decisions when you are in the midst of the pain and the suffering and the fear of losing someone that you love, even with mom's clear direction -- and there was no doubt in what she wanted and her intent. Even with all of that, that last day when the paramedics came, it was very hard, and we had to rely on each other and remind each other in that moment, so even with the directive in that final moment when it's time to make the decision, it's incredibly difficult. So I can't even begin to imagine what it's like for families that don't prepare before something like that happens.

>> Michael Grant: Here now to tell us more about advance directives is Dr. Gillian Hamilton. She is Co-Director of Healthcare Decisions, an organization looking to create a repository of advance directives in the Secretary of State's office. Doctor, it's good to see you.

>> Dr. Gillian Hamilton: Thank you.

>> Michael Grant: There is a lot of different terms going on here. Let's start with the one we've been talking about. What is an "advance directive"?

>> Dr. Gillian Hamilton: An advance directive is anything you have put in writing that says what you want done at a time when you can no longer tell us, and it's related to healthcare, who do you want to make decisions for you, that's a medical power of attorney. That's one form of advance directive. Do you want a feeding tube if you have severe Alzheimer's' disease. Do you want to be resuscitated if you have cancer. They come under the advance directive.

>> Michael Grant: What about a do not resuscitate order?

>> Dr. Gillian Hamilton: A do not resuscitate order is one kind of advance directive. Now, you can fill out these orange forms, and that says that you never want to be resuscitated. Or you can say I want to be resuscitated temporarily, but if there is nothing reversed, I want to stop it.

>> Michael Grant: Tell us about your organization.

>> Dr. Gillian Hamilton: Healthcare Decisions is part of Hospice of the Valley created by all of the hospitals in town that contributed and a number of foundations to help people to start writing down their wishes. We found in surveys in hospitals in town that between 12 and 25% of people who put their wishes in writing. What's happening for me in a physician, patients come in and we don't know what they want. It's too late to ask.

>> Michael Grant: Why don't people do that? What are the road blocks to it?

>> Dr. Gillian Hamilton: They don't want to talk about death. They don't want to think about death. Their doctors don't want to talk about death. You should here my residents when I try to train them to ask you, what do you want, Mike? They go, Mike, what would you want if -- something were to -- we're not taught.

>> Michael Grant: It's just a difficult subject to talk about?

>> Dr. Gillian Hamilton: It's a difficult subject.

>> Michael Grant: I had a personal experience with my mother. Is it also difficult from the standpoint of trying to envision all sorts of different healthcare conditions that might occur and how a person would want to be dealt with in those sorts of circumstances?

>> Dr. Gillian Hamilton: That's a great point. Healthcare Decisions has a particular form that's on our web site that we'll show, that asks you, instead of what particular interventions do you want, do you want a feeding tube, do you want dialysis? It says Mike, what's the quality of life that you find acceptable and at what point would you say, no, don't keep me alive artificially anymore. Is it when you have such severe Alzheimer's that you can't recognize people? Is that the point for you? And everybody has a different point. And that way we've taking it to physicians and they can apply that to all of the interventions that we have.

>> Michael Grant: Let's talk about the Secretary of State repository. First, why is it needed?

>> Dr. Gillian Hamilton: We're very excited about that. Barbara Volcraft (phonetic) Co-Director of Healthcare Decisions has been working with the Secretary of State's office. Our goal is that when you come into the hospital, let's say you had a heart attack tonight, God forbid, and were taken to the hospital, you don't have your advance directive with you. So you'll hit the emergency room, and they won't know what you want. This way you can file it with the Secretary of State's office. You'll get a card with a number. The ER pulls up that card out of your wallet, punches in the number and can pull up your scanned directive. It would make a huge difference.

>> Michael Grant: Now, how much would it cost?

>> Dr. Gillian Hamilton: We don't know yet. We're working on that. We're hoping it will cost nothing because we found in other states that even a $10 fee deters people from filing. Healthcare Decisions is committed to raising funding so that won't happen. We'll have to work that out.

>> Michael Grant: The concept would be that this could be, and I assume obviously it would be tied into the Internet, this could be a repository available 24 hours a day and accessed by many kinds of healthcare providers?

>> Dr. Gillian Hamilton: Absolutely.

>> Michael Grant: What about the actual forms of the healthcare directives? For example, should they be notarized?

>> Dr. Gillian Hamilton: In this state they do not need to be notarized. You just need one witness. However, if you travel or in other states notarization is required, so a lot of people like to do it.

>> Michael Grant: You anticipated my next question. Do the requirements for these things vary state by state and perhaps should you try to search for the most universal form available?

>> Dr. Gillian Hamilton: They do vary. If you look on our web site www.hcdecisions.org, we have states' requirements linked to them. But if you get it notarized, our form -- and the attorney general has forms on their web site, and there are many forms. You can write it on a napkin, if you want, as long as you have it witnessed.

>> Michael Grant: Let's throw that information up one more time for people to get in touch, telephone number and the web site.

>> Dr. Gillian Hamilton: 602-222-2229, and our web site is www.hcdecisions.org. Anybody who wants a presentation at their workplace or at a club or even just an individual consultation, we'll help people fill out the forms. The forms are available for free. Information, videos, we have it all, because that's what the hospitals want. They want people to know more.

>> Michael Grant: Dr. Hamilton, thank you for joining us.

>> Dr. Gillian Hamilton: Pleasure.

>> Michael Grant: It's something that most of us look to do, save money. One ASU professor has made a study of being frugal. His research is showing that the old saying of "waste not, want not," may not be the American way anymore.

>> John Lastovicka: An awful lot of consumer research and marketing research is aimed at getting people to buy more. But subsequently, then, we don't know a lot about the folks who aren't buying more. Not because of involuntary reasons but voluntarily. We thought that would be a useful thing to do.

>> Reporter: As a professor of marketing, John Lastovicka is interested in people's spending habits. He is also interested in the largely overlooked consumer trait of being frugal, an endangered practice in our prosperous American society.

>> John Lastovicka: Frugal people were fairly rare, maybe 10% or 15% of the population. That's not the typical lifestyle, not the typical behavior pattern. They tend not to be people who claim to be keeping up with the Joneses. Also another thing we found out is that that in a sense they tend not to be very materialistic. That is, they don't necessarily view their self-worth as being reflected in what they own and what they have or what they are paying for.

>> Reporter: Lastovicka's findings are drawn from a study of research which included in-depth interviews with a variety of study participants, the results of which were at times unexpected.

>> John Lastovicka: One of the studies that we did included a reasonable sized probability sample of Arizona. And we had measures of respondents' frugality and we had measures of demographic characteristics, income, religious preference and so forth. And I know going into that study, I expected yeah, we would find some differences, but we didn't.

>> Reporter: Another surprising result was that frugality seems to be little influenced by gender.

>> John Lastovicka: One of the studies that we did, I guess we used what you could loosely call the airport methodology, and what we did there was to find people who had time on their hands as they were waiting for flights, to help us with the research. But what we did was to approach couples, men and women, and in the questionnaire that we gave them, we asked them not only to rate themselves on a whole bunch of questions about how frugal they were, but also to rate their spouse. And universally what you found out was everybody thought that their spouse wasn't as frugal as they thought they were. And there weren't any differences on average between men and women.

>> Reporter: The only real demographic difference found in Lastovicka's research was between ASU students and the general population.

>> John Lastovicka: If you are an undergraduate student and perhaps mom and dad are footing the bills for your time here at ASU, you need to be frugal less than the average adult that is supporting themselves.

>> Jessica Prunty: I mean, I think about money and it's a concern of mine, but I'm not to the point where I turn off a light when I leave a room. I wouldn't say I'm frugal, no.

>> Reporter: Lastovicka divides frugality into three components. A frugal person is goal directed and has established financial priorities. They possess acquisition strategies, purchasing only what is needed. And they practice careful usage of what they already have in their household.

>>John Lastovicka: The vast majority of people think that they are frugal. But then when you look at their behaviors, it's quite a bit different.

>> Reporter: The truly frugal tend to engage in a number of cost-cutting practices, such as recycling plastic bags as garbage liners and reusing plastic food storage bags. They eat leftovers and take a lunch to work rather than eat out. To cut down on energy bills, frugal people tend to be careful about turning off lights and dry their clothes on a line instead of in a dryer. But one seemingly frugal behavior absent from Lastovicka's findings was coupon clipping.

>> John Lastovicka: Frugal people tend to not clip coupons, tended not to be using deals, so forth for things at the grocery store. As a marketer, I know that these coupons are there to sell you something. They are not trying to really save you anything. I think probably the frugal person knows this.

>> Kathleen Dubiach: I don't really use coupons. The coupons that I've seen are usually for things that are more expensive like you have to buy more than one item, and also, I find that they are for more processed foods than what I use.

>> Reporter: While economics is the obvious motivation for pursuing a frugal lifestyle, the argument that one can live better with less is equally compelling.

>> John Lastovicka: And I think that we tried to tap in, was to say, well, gee, if you are not frugal, what's ended up happening is you've bought into our culture of materialism and you are buying more things and bigger things, and if you are really on the bandwagon of materialism, you're in debt, and materialism, I think is something that perhaps is insatiable and probably is not something that's going to give you a lot of satisfaction.

>> Michael Grant: To see a transcript of tonight's show, please visit our web site at www.kaet.asu.edu, and click on the word "Horizon" in the lower left of the screen. You can also see what's coming up on "Horizon."

>> Michael Grant: And here's what's on the program tomorrow.

>> Reporter: In a couple of years, Rural/Metro will no longer be answering the call for City of Scottsdale.

>>> The feds launch a program to deal with human smugglers.

>>> The special session is now in its fourth week. Is there an end in sight? These topics and more on "Horizon's" Friday Journalists' Roundtable.

>> Michael Grant: Thanks very much for joining us on a Thursday. I'm Michael Grant. Have a great one. Good night.

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