Hostname: page-component-586b7cd67f-dlnhk Total loading time: 0 Render date: 2024-11-23T22:11:37.806Z Has data issue: false hasContentIssue false
  • English
  • Français

Trust, plan knowledge and 401(k) savings behavior*

Published online by Cambridge University Press:  18 May 2011

JULIE R. AGNEW ,
LISA R. SZYKMAN ,
STEPHEN P. UTKUS  and
JEAN A. YOUNG
JULIE R. AGNEW
Affiliation:
The College of William and Mary, Mason School of Business, P.O. Box 8795, Williamsburg, VA 23187 (e-mail: [email protected])
LISA R. SZYKMAN
Affiliation:
The College of William and Mary, Mason School of Business, P.O. Box 8795, Williamsburg, VA 23187
STEPHEN P. UTKUS
Affiliation:
Vanguard Center for Retirement Research, 100 Vanguard Boulevard, M38, Malvern, PA 19355
JEAN A. YOUNG
Affiliation:
Vanguard Center for Retirement Research, 100 Vanguard Boulevard, M38, Malvern, PA 19355
Get access Rights & Permissions [Opens in a new window]

Abstract

Plan knowledge and trust in financial institutions – two variables missing from standard neoclassical or behavioral models of decision-making – are strongly correlated to 401(k) savings behavior based on results from this paper. In voluntary enrollment settings, plan knowledge and demographic characteristics are related to participation in a 401(k) plan. In automatic enrollment settings, trust in financial institutions and knowledge of an available plan match are related to participation. Although this study cannot prove causality of the relationships, it does extend our understanding of the complex factors underlying savings choices. Policy implications are discussed.

Keywords

Behavioral finance401(k)trustfinancial literacysavings
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 11 , Issue 1 , January 2012 , pp. 1 - 20
Copyright
Copyright © Cambridge University Press 2011

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Agarwal, S., Driscoll, J. C., Gabaix, X. and Laibson, D. I. (2009) The age of reason: financial decisions over the lifecycle with implications for regulation. Working Paper, SSRN. Available at: http://ssrn.com/abstract=973790Google Scholar
Agnew, J. R. and Szykman, L. R. (2005) Asset allocation and information overload: the influence of information displays. Journal of Behavioral Finance, 6(2): 57–70.CrossRefGoogle Scholar
Alesina, A. and La Ferrara, E. (2002) Who trusts others? Journal of Public Economics, 85: 207–234.CrossRefGoogle Scholar
Behrman, J. R., Mitchell, O. S., Soo, C. and Bravo, D. (2010) Financial literacy, schooling, and wealth accumulation. Working Paper No. 16452, NBER.CrossRefGoogle Scholar
Benartzi, S. and Thaler, R. H. (2007) Heuristics and biases in retirement savings behavior. Journal of Economic Perspectives, 21(3): 81–104.CrossRefGoogle Scholar
Bernheim, B. D. and Garrett, D. M. (2003) The effects of financial education in the workplace: evidence from a survey of households. Journal of Public Economics, 87: 1487–1519.CrossRefGoogle Scholar
Bertrand, M., Mullainathan, S. and Shafir, E. (2006) Behavioral economics and marketing in aid of decision making among the poor. Journal of Public Policy and Marketing, 25(1): 8–23.CrossRefGoogle Scholar
Chan, S. and Stevens, A. H. (2008) What you don't know can't help you: pension knowledge and retirement decision making. Review of Economics and Statistics, 90(2): 253–266.CrossRefGoogle Scholar
Choi, J. J., Laibson, D. and Madrian, B. C. (2005) $100 bills on the sidewalk: suboptimal saving in 401(k) plans. Working Paper, Harvard University.CrossRefGoogle Scholar
Choi, J. J., Laibson, D., Madrian, B. C. and Metrick, A. (2006) Saving for retirement on the path of least resistance. In McCaffrey, Ed and Slemrod, J. (eds), Behavioral Public Finance: Toward a New Agenda. New York: Russell Sage Foundation, pp. 304–351.Google Scholar
Duflo, E. and Saez, E. (2003) The role of information and social interactions in retirement plan decisions: evidence from a randomized experiment. Quarterly Journal of Economics, 118(3): 815–842.CrossRefGoogle Scholar
Glaeser, E. L., Laibson, D. I., Scheinkman, J. A. and Soutter, C. L. (2000) Measuring trust. Quarterly Journal of Economics, 115(3): 811–846.CrossRefGoogle Scholar
Grow, B., Epstein, K., Elgin, B. and Der Hovanesian, M. (2007) The poverty business; inside U.S. companies’ audacious drive to extract more profits from the Nation's working poor. Business Week, 21 May 2007.Google Scholar
Guiso, L., Sapienza, P. and Zingales, L. (2008) Trusting the stock market. Journal of Finance, 63(6): 2557–2600.CrossRefGoogle Scholar
Iyengar, S. S. and Kamenica, E. (2010) Choice proliferation, simplicity seeking and asset allocation. Journal of Public Economics, 94: 530–539.CrossRefGoogle Scholar
Knack, S. and Keefer, P. (1997) Does social capital have an economic payoff? A cross-country investigation. Quarterly Journal of Economics, 112(4): 1251–1288.CrossRefGoogle Scholar
LaPorta, R., Lopez-de-Silanes, F., Shliefer, A. and Vishny, R. W. (1997) Trust in large organizations. American Economic Review, 87(2): 333–338.Google Scholar
List, J. A. (2004) Neoclassical theory versus prospect theory: evidence from the marketplace. Econometrica, 72(2): 615–625.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. S. (2006) Financial literacy and planning: implications for retirement wellbeing. Wharton Pension Research Council Working Paper No. 2006-1, Wharton School, University of Pennsylvania. Available at http://www.pensionresearchcouncil.orgGoogle Scholar
Madrian, B. C. and Shea, D. F. (2001) The power of suggestion: inertia in 401(k) participation and savings behavior. Quarterly Journal of Economics, 116: 1149–1525.CrossRefGoogle Scholar
Mitchell, O. S., Utkus, S. P. and Yang, T. (2007) Turning workers into savers? Incentives, liquidity and choice in 401(k) plan design. National Tax Journal, LX(3): 469–489.CrossRefGoogle Scholar
Moore, D. (2003) Survey of financial literacy in Washington state: knowledge, behavior, attitudes, and experiences. Social and Economic Sciences Research Center Technical Report, 03-39.Google Scholar
Munnell, A. H., Sunden, A. and Taylor, C. (2001/2002) What determines 401(k) participation and contributions? Social Security Bulletin, 64(3): 64–76.Google ScholarPubMed
Nessmith, W. E., Utkus, S. P. and Young, J. A. (2007) Measuring the effectiveness of automatic enrollment. Vanguard Center for Retirement Research, available at http://www.vanguard.com/retirementresearchGoogle Scholar
Nyce, S. A. (2005) The importance of financial communications for participation rates and contribution levels in 401(k) plans. Wharton Pension Research Council Working Paper No. 2005-03, Wharton School, University of Pennsylvania. Available at http://www.pensionresearchcouncil.orgGoogle Scholar
Olsen, R. A. (2008) Trust as risk and the foundation of investment value. Journal of Socio-Economics, 37: 2189–2200.Google Scholar
Sethi-Iyengar, S., Huberman, G. and Jiang, W. (2004) How much choice is too much? Contributions to 401(k) retirement plans. In Mitchell, O. S. and Utkus, S. P. (eds), Pension Design and Structure: New Lessons From Behavioral Finance. Oxford, UK: Oxford University Press, pp. 83–95.CrossRefGoogle Scholar
Szykman, L., Rahtz, D. R., Plater, M. and Goodwin, G. (2005) Living on the edge: financial services for the lower socio-economic strata. Working Paper, The College of William and Mary.Google Scholar
van Rooij, M., Lusardi, A. and Alessi, R. (2007) Financial literacy and stock market participation. Working Paper No. 2007-162, University of Michigan Retirement Research Center. Available at http://www.mrrc.isr.umich.edu/publications/papers/CrossRefGoogle Scholar
Vanguard (2007) How America Saves 2006: A Report on Vanguard 2005 Defined Contribution Plan Data. Available at http://www.vanguard.com/retirementresearchGoogle Scholar