New Lessons on Saving: Insights and Challenges
Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)
- Chair: Olivia S. Mitchell, University of Pennsylvania
Are Retirement Planning Tools Substitutes or Complements to Financial Capability?
AbstractWe conduct a randomized controlled trial to understand how a web-based retirement saving calculator affects workers' retirement-savings decisions. In both conditions, the calculator projects workers' retirement income goals. In the treatment condition, it also projects retirement income based on defined contribution savings, prominently displays the gap between projected and actual retirement income, and allows users to interactively explore how alternative, future contribution choices would affect the gap. The treatment increased average annual retirement contributions by over two percent. Effects were larger for those with greater financial knowledge, suggesting this type of tool complements, rather than substitutes for, underlying financial capability.
Financial Regret at Older Ages and Longevity Awareness
AbstractOlder people often express regret about financial decisions made earlier in life that left them susceptible to old-age insecurity. Prior work has explored one outcome, saving regret, or peoples’ expressed wish that they had saved more earlier in life. The present paper extends attention to five additional areas regarding financial decisions, examining whether older Americans also regret not having insured better, claimed benefits and quit working too early, and becoming financially dependent on others. Using a controlled randomized experiment conducted on 1,764 respondents age 50+ in the Health and Retirement Study, we show that providing people objective longevity information does alter their self-reported financial regret. Specifically, giving people information about objective survival probabilities more than doubles regret expressed about not having purchased long term care, and it also boosts their regret about not having purchased lifetime income by 2.4 times. We conclude that information provision can be a potent, as well as cost-effective, method of alerting people to retirement risk.
Automating Short-Term Payroll Savings: Evidence from Two Large U.K. Experiments
AbstractAutomatic enrollment is often used to increase retirement plan savings. Can it also be used to increase savings for short-term needs? We evaluate data from two large U.K. experiments. The first randomly assigned opt-in, opt-out, or active choice enrollment into short-term savings accounts at two employers. Nine months later, scheme participation was 46 percentage points higher under automatic enrollment than opt-in enrollment, and average balances were £105 higher. Active choice enrollment yields results similar to those under opt-in enrollment. In the second experiment, after years of offering opt-in short-term savings accounts funded by payroll deduction to its employees, an employer changed enrollment in these accounts to opt-out for new hires only. In tenure month 18, scheme participation was 43 percentage points higher under automatic enrollment, and average balances were £162 higher. Automatic enrollment did not decrease usage of wage advances.
- D1 - Household Behavior and Family Economics
- D9 - Micro-Based Behavioral Economics