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  5. New Lessons on Saving: Insights and Challenges
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New Lessons on Saving: Insights and Challenges

Paper Session

Friday, Jan. 5, 2024 8:00 AM - 10:00 AM (CST)

Grand Hyatt, Presidio B
Hosted By: American Economic Association
  • Chair: Olivia S. Mitchell, University of Pennsylvania

Save(d) by Design

Saurabh Bhargava
,
Carnegie Mellon University
Lynn Conell-Price
,
CFPB
Richard Mason
,
City University London
Shlomo Benartzi
,
University of California-Los Angeles

Abstract

We examine over 800 401(k) plans with automatic enrollment to investigate the sensitivity of initial enrollment to non-economic features of digital design shaping plan engagement. Using three large-scale field experiments that vary the psychological design (i.e., color, layout, phrasing, informational salience) of the digital interface, we arrive at four findings. First, we show that modest changes to the psychological design of the interface result in sizable increases in personalized enrollment, full match take-up, and average contributions. Second, enrollees increase their initial contributions substantially. Third, while lab evidence indicates that design does not affect enrollment through standard economic channels of preferences/beliefs, we find instead that enrollment results from a non-deliberative process in which design shifts affective appraisals. Finally, an industry survey shows that plan administrators underestimate the potency of design and cannot identify optimal design elements. These findings prompt concerns about the retirement preparedness of 401(k) enrollees, highlight the potentially profound but largely unrecognized influence of digital design on financial decisions, and challenge economic assumptions underlying prevailing approaches to consumer protection and welfare analyses.

Are Retirement Planning Tools Substitutes or Complements to Financial Capability?

Gopi Shah Goda
,
Stanford University
Matthew R. Levy
,
London School of Economics
Colleen Flaherty Manchester
,
University of Minnesota
Joshua Tasoff
,
Claremont Graduate University
Jiusi Xiao
,
Claremont Graduate University
Aaron Sojourner
,
W.E. Upjohn Institute for Employment Research

Abstract

We 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

Abigail Hurwitz
,
Hebrew University of Jerusalem
Olivia S. Mitchell
,
University of Pennsylvania

Abstract

Older 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

Sarah Holmes Berk
,
NBER
John Beshears
,
Harvard University
James J. Choi
,
Yale University
David Laibson
,
Harvard University
Jay Garg
,
Harvard University

Abstract

Automatic 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.

Discussant(s)
Suzanne Shu
,
Cornell University
Michael Finke
,
Texas Tech University
Catherine Eckel
,
Texas A&M University
Arie Kapteyn
,
University of Southern California
JEL Classifications
  • D1 - Household Behavior and Family Economics
  • D9 - Micro-Based Behavioral Economics