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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.
Journal of Pension Economics and Finance 12/2011; 11(01):1 - 20. · 0.25 Impact Factor
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ABSTRACT: This paper shows that increases in the minimum wage rate can have ambiguous effects on the working hours and welfare of employed workers in competitive labor markets. The reason is that employers may not comply with the minimum wage legislation and instead pay a lower subminimum wage rate. If workers are risk neutral, we prove that working hours and welfare are invariant to the minimum wage rate. If workers are risk averse and imprudent (which is the empirically likely case), then working hours decrease with the minimum wage rate, while their welfare may increase.
Center for Retirement Research, Issues in Brief. 01/2007;
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ABSTRACT: At three large firms offering 401(k) plans, we assess the impact of financial literacy and trust on 401(k) savings behavior in voluntary and automatic enrollment 401(k) plans. Financial literacy plays a critical role in improving 401(k) savings behavior -- it reduces both the proportion of non-joiners in voluntary 401(k) plans and the proportion of quitters in automatic enrollment plans. Trust is critical as well in improving quit rates in automatic enrollment plans. Both financial literacy and trust appear to have more sizeable marginal effects than do those from income. We also find no initial evidence that non-participants are low-income rational agents who fail to participate in a 401(k) plan due to anticipated income support from Social Security. Our findings underscore the importance of ongoing workplace education for both voluntary and automatic enrollment plans and highlight the unique issue of trust in automatic enrollment plans.
Center for Retirement Research Working Papers.
