If you live in Denmark, you might enjoy some of the happiest living conditions in the world – cycling-friendly streets, clean harbours, and a generally high quality of life. But if you need a heart transplant, you’re out of luck. Why? 

Organ donor rates in Denmark lag significantly behind many European countries. The reason isn’t cultural or moral indifference but rather status quo bias – a tendency to stick with the default option. *Denmark operates on an “opt-in” system for organ donation, where individuals must actively register to become donors. Meanwhile, countries like France and Austria use an “opt-out” system, automatically enrolling citizens as donors unless they choose otherwise.  

The result?  

A stark difference in donor rates due to the powerful pull of inertia.

Effective Consent Rates, by Country

This Same Principle Applies to Financial Decisions

Consider the case of a 50-year-old teacher in Queensland versus their counterpart in New South Wales. Despite identical salaries, working hours, and tenure, the QLD teacher can have up to $300,000–$400,000 more in their superannuation balance. Why? Thanks to status quo bias and the way defaults are structured. 

In Queensland, employees are defaulted into contributing 5% of their salary to super, with the option to opt-out. Additionally, for many years, the QLD government provided matching contributions of 2.75% for those who made the full 5% contribution. By contrast, NSW teachers received only the standard employer contributions unless they actively chose to salary-sacrifice additional amounts. 

The difference? Many QLD teachers reaped the benefits simply by staying with the default. But what if your default setting isn’t working for you? This is where the true cost of inaction comes into play. 

The Hidden Costs of Inaction 

Here are some examples of what we regularly see; 

1. Poor Superannuation Choices 

  • Staying in an underperforming super fund can cost tens of thousands of dollars over time. For example, moving from a bottom-quartile fund to a top-quartile performer can make a significant difference in your retirement savings. 
  • Choosing a conservative option in super instead of a growth strategy can also mean missing out on higher long-term returns. Over 20 years, the difference in returns can equate to hundreds of thousands of dollars. 

2. Mortgage and Cash Management 

  • In a high-interest-rate environment, failing to refinance your mortgage can mean paying thousands more each year in interest than necessary. 
  • Leaving money in a cash account instead of investing it can result in significant opportunity costs. For instance, over 10 years, the average return for a growth portfolio far outpaces cash returns, with compounding amplifying the gap.  

3. Underperforming Assets 

  • Holding onto a poorly performing investment due to emotional attachment (“I don’t want to sell at a loss”) can prevent you from reallocating to better opportunities. While it feels safer to “wait it out,” this often compounds losses over time. 
  • Behavorial tendencies like the Endowment Effect or Confirmation Bias can trap investors in suboptimal decisions. 
Cognitive Bias Definition Examples Impact
Endowment Effect The tendency to overvalue items simply because we own them. Holding onto underperforming investments because of perceived value; Demanding a higher price for owned goods than their actual market value. Leads to poor financial decisions and missed opportunities for better investments.
Confirmation Bias The tendency to seek information that confirms existing beliefs. Ignoring negative reviews of an investment or financial product; Only considering advice or data that supports your current investment choices. Reinforces bad financial decisions and limits exploration of alternative, better strategies.

 

4. Tax Inefficiencies 

  • Not seeking advice on tax strategies can lead to paying significantly more than you need to. For example, failing to structure investments tax-effectively or missing out on deductions can leave money on the table each year. 

Delaying financial decisions doesn’t just cost you money. It can also create stress, uncertainty, and frustration. Inaction can keep you from achieving your goals, whether that’s retiring earlier, buying a dream home, or taking that long-desired trip. 

The Role of Status Quo Bias in Financial Decisions 

Status quo bias isn’t limited to organ donation or superannuation contributions. It also manifests in financial inertia across various areas: 

  • Inertia in Financial Products: People often stick with existing financial products like insurance policies or investment accounts without reassessing their suitability or exploring better alternatives. 
  • Resistance to New Financial Technologies: Familiarity with traditional methods often prevents individuals from adopting new financial tools or services, even when they offer significant advantages. 

By recognising these tendencies, individuals can take active steps to overcome inertia and make more informed financial decisions that align with their goals. 

Quantifying the Costs 

To truly appreciate the impact of inaction, let’s look at some numbers: 

  • Super Fund Comparison: Switching from a bottom-quartile super fund to a top-quartile performer could increase your retirement savings by $150,000–$200,000 over 20 years (assuming an average balance of $100,000 and annual contributions). 
  • Cash vs Growth Investments: Keeping $50,000 in cash versus investing it in a growth portfolio over 10 years (with a 6% average return) can cost you approximately $34,000 in lost earnings. 
  • Mortgage Refinancing: Refinancing a $500,000 mortgage from 6% to 5% could save $5,000 annually in interest. 

 Don’t Let The Cost Of Doing Nothing Hold You Back 

Status quo bias is comforting, but it can come at a high cost if your current situation isn’t optimised. From superannuation to mortgages, investments, and taxes, the true cost of inaction can be staggering. The good news is that with the right advice and small, proactive steps, you can overcome inertia and take control of your financial future. 

Book a call if you’d like to discuss your unique circumstances. 

 

*Denmark has introduced a new bill into parliament to switch the consent system from opt-in, to opt-out.