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Publication Do Additional Dollars Buy Engagement? Effects of Monetary Incentives on Attending Financial Aid Counseling for At-Risk Students(2024-04-01) Cox, James C.During the COVID pandemic, many financially vulnerable students at Georgia State University (GSU) received money from the CARES Act Higher Education Emergency Relief Fund (HEERF). With this money depleted, GSU administrators were concerned that GSU HEERF recipients would be at risk of dropping out. They wanted these students to receive financial counseling advising students about their options to successfully fund their education. However, uptake for similar counseling had historically been low. In this context, GSU planned to email HEERF fund recipients inviting them to attend financial counseling.Publication New Insights into Improving Financial Well-being(2024-04-01) Coats, JenniferFinancial well-being (FWB) is often measured using the CFPB’s Financial Well-Being Scale, but there are many alternative ways to assess this concept, including individual perceptions of FWB (e.g., financial satisfaction or stress), objective outcomes that are indicative of FWB (e.g., net wealth and retirement adequacy), and behaviors that influence FWB (e.g., planning, saving, and budgeting). Improving FWB requires a nuanced understanding of factors contributing to these measures. We present results of an analysis designed to investigate the drivers through which individuals attain FWB across its different dimensions. Individual discount rates, risk preferences, and financial self-confidence consistently contribute to different indicators of FWB. In particular, we find significant evidence that both the discount rate and self-confidence in financial decision-making have strong impacts on the dimensions of FWB. Financial literacy has an important moderating role in relation to these two drivers and to income. Personality traits, such as conscientiousness and neuroticism are influential in alternative ways across models.Publication Financial Literacy, Portfolio Choice, and Wealth Inequality: A General Equilibrium Approach(2024-04-12) Kim, MinI develop a general equilibrium model in which households allocate their wealth to safe and risky assets (“bonds” and “stocks”) and accumulate financial literacy to raise their risk-adjusted stock returns. Calibrated to match financial literacy and stock market participation rate of U.S. households, the model demonstrates that a policy subsidizing financial literacy acquisition increases short-run stock investments. In equilibrium, however, the resulting aggregate capital growth lowers the average equity premium, thereby moderating the subsidy’s impact. The policy mitigates wealth inequality by inducing heterogeneous portfolio adjustments across the wealth distribution. With the subsidy, the middle wealth quartiles acquire more financial literacy and shift their portfolios toward stocks. The top quartile attains its maximum literacy level prior to the subsidy and shifts toward bonds to compensate for lower stock returns. The ratio of total wealth held by the top quartile versus the rest of the population decreases.Publication Evaluating the Effects of a Low-Cost, Online Financial Education Program(2024-02-29) Clark, Robert LThis paper provides evidence on how a low-cost, online, and scalable financial education program influences older participants’ financial knowledge. We tested the program using a field experiment that included short stories covering three fundamental financial education topics: compound interest, risk diversification, and inflation. Two surveys were administered eight months apart to measure the effects of those stories on participants' short-term and longer-term knowledge and financial distress indicators. We show that the risk diversification story was the most effective at improving participants' knowledge, in both the short and longer term. The compound interest and inflation stories significantly increased participants' knowledge in the short term, but the gain in financial literacy declined over time.Publication Household Investment in 529 College Savings Plans and Information Processing Frictions(2024-01-16) Li, James J.; Mitchell, Olivia S; Zhu, ChristinaWe investigate how information processing frictions contribute to household suboptimal saving and investment behavior. We find that 60% of open accounts in college 529 savings plans are invested suboptimally due to high expenses and tax inefficiency. Such investments yield an expected loss of 9% over the accounts’ projected lifetimes. Consistent with information processing frictions contributing to inefficient investment, the extent of investment in suboptimal home-state accounts decreases with household financial literacy and increases with plan document disclosure complexity. Overall, our results suggest that information processing frictions shape households’ suboptimal investment in college savings plans and reduce their financial well-being.Publication Selection into Financial Education and Effects on Portfolio Choice(Pension Research Council, 2023-09-01) Irina GemmoTo examine how financial education affects financial outcomes, one must evaluate whether and how sample selection may bias inferences regarding program impacts. Our incentivized experiment reveals how such selection influences estimated financial education effects. The more financially literate and those expecting higher gains pay more to purchase education, while those who consider themselves very financially literate pay less. Using portfolio allocation tasks, we show that the financial education increases portfolio efficiency and welfare by almost 20 and 3 percentage points, respectively. In our setting, selection does not greatly influence estimated program effects, comparing those participating and those who do not.Publication Racial and Ethnic Differences in Longevity Perceptions and Implications for Financial Decision Making(2023-06-22) Hurwitz, AbigailInaccurate perceptions regarding life expectancy can lead to suboptimal financial decisions with long-term consequences, including undersaving prior to retirement and overspending during retirement. As prior research suggests that Covid-19 disproportionately harmed those with low income, Blacks, and Hispanics in the United States, we seek to determine whether subjective survival perceptions among these groups changed in a manner consistent with observed outcomes. We fielded two online experimental surveys of US residents, one of which occurred at the outset of the pandemic, and the second, a year later. Using vignettes, we examine whether minorities’ perceptions regarding longevity at the outbreak were consistent with observed reality, and how these compared to members of the White majority population. Furthermore, the panel aspect of our study enables us to test whether and how these perceptions updated over time during the pandemic. Finally, we show how these perceptions related to advice regarding retirement saving and drawdowns.Publication Retirement Assets and the Wealth Gaps for Black and Hispanic Households(2023-07) Suarez, GustavoWe compare retirement wealth for Black, Hispanic, and White families age 40-59 in the Survey of Consumer Finances (SCF) and the Distributional Financial Accounts. We augment defined contribution (DC) pension wealth in the survey with household-level measures of defined benefit (DB) pension wealth and social security wealth. We find that accounting for both DB and DC pensions reduces White/non-White retirement wealth ratios when comparing averages across groups but increases White/non-White ratios when comparing families in the middle of each race-specific distribution. By contrast, social security wealth lowers White/non-White wealth ratios in both ways of comparing across groups.Publication How Racial Differences in Housing Returns Shape Retirement Security(2023-09) Kermani, AmirHousing is a key resource for US retirees, comprising two-fifths of the net wealth of retirementage Americans, and those who experience higher housing returns improves retirement security. Following a home sale, a one percentage point increase in annual returns raises subsequent homeownership rates by about one percentage point (about 2.5%). While migrating homeowners who had higher returns move to neighborhoods with more favorable health care, longevity impacts, and crime rates, these benefits are substantially larger for White homeowners relative to Black and Hispanic homeowners. We emphasize the importance of policies that target disparities that occur prior to retirement.Publication Would Baby Bonds Reduce Racial Retirement Wealth Inequality?(2023-09) Zewde, NaomiBaby bonds, publicly-funded trust funds, are designed, and projected, to reduce racial wealth inequality among young adults. While existing local iterations seed less, a federal proposal would seed up to $50,000, varying inversely with household wealth and invested on infants’ behalf until young adulthood. Effects on retirement wealth are uncertain and would be subject to two opposing forces. First, inequality could grow if less-wealthy recipients must consume the funds for immediate needs. Yet, secondly, its progressivity may ameliorate life-course processes that exaggerate inequalities. Complementary policies could magnify baby bonds’ late-life impact by improving households’ financial capacity across the life course.