Pension Research Council Working Papers

 

 

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Now showing 1 - 10 of 29
  • 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
    Evaluating the Effects of a Low-Cost, Online Financial Education Program
    (2024-02-29) Clark, Robert L; Clark, Robert L
    This 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, Christina
    We 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
    Registered Index-Linked Annuities in Qualified Retirement Plans
    (2023-02-05) Ellis, Cameron; Moenig, Thorsten; Volkman-Wise, Jacqueline
    Many Americans continue to be financially underprepared for their retirement. Automatic enrollment in employer-sponsored qualified retirement plans (QRPs) has helped, but the target-date funds commonly used as default investment choices have their own problems. We propose a target-date version of the recently developed Registered Index-Linked Annuities and we suggest that these “TD-RILAs” provide a more cost-effective and more transparent way to attain a diversified equity exposure, the level of which decreases over time. A theoretical analysis explores the optimal structure of TD-RILAs and their comparison to target-date funds from an investor’s perspective. A large-scale lab experiment sheds further light on investors’ preferences, focusing on the importance of product transparency, of the employer’s default investment choice, and of the role of information in improving financial literacy. We conclude that TD-RILAs would be a suitable addition to QRPs and may even rival target-date funds as Qualified Default Investment Alternatives.
  • Publication
    Understanding Financial Vulnerability Among Asians, Blacks, and Hispanics in the United States
    (2023-03-21) Hasler, Andrea; Lusardi, Annamaria; Mitchell, Olivia S; Sconti, Alessia
    The COVID-19 crisis has brought to light the deeply rooted financial struggles that many people face in America, and it also exacerbated racial inequality. In particular, minority communities have been disproportionately impacted by the pandemic in many ways, making them ideal targets for efforts to promote financial well-being. This paper examines the financial vulnerability of Asians, Blacks, and Hispanics in the United States, along with potential drivers, using data from the 2021 National Financial Capability Study and the 2022 TIAA Institute-GFLEC Personal Finance Index. We analyze indicators measuring financial vulnerability across three topics of personal finances: retirement planning, indebtedness, and financial resilience. We find that more Blacks and Hispanics reported being financially vulnerable, compared to Whites and Asians. The main contributing factors to the racial and ethnic gaps in financial vulnerability are single parenthood, youth, lack of savings and wealth, too much debt, income shocks, costly money management practices, and low financial literacy levels. The empirical analysis is complemented by roundtable discussions with experts and thought leaders from National CAPACD and UnidosUS. Our research findings and recommendations can be used to develop more inclusive and tailored financial education programs.
  • Publication
    Early Pension Withdrawals in Chile During the Pandemic
    (2023-02-01) Fuentes, Olga M.; Mitchell, Olivia S; Villatoro, Felix
    Chile, with one of the largest and best funded defined contribution programs in Latin America, held over USD $200 bn in assets at the onset of the Covid-19 crisis, or more than 80% of GDP. Reacting to populist pressures during the pandemic, however, the government gave non-retired participants three separate opportunities to tap into their retirement accounts, leaving some 4.2 million participants with zero retirement savings and draining around $50 bn from the system. This paper explores several hypotheses regarding why people withdrew their pension money early, and it also presents evidence regarding the likely impact of this short-term policy on long-term retirement wellbeing. We conclude with lessons for global policymakers seeking to protect pension assets critical for retirement security.
  • Publication
    Factors Influencing the Choice of Pension Distribution at Retirement
    (2022-05-01) Clark, Robert L.; Mitchell, Olivia S
    One of the most important financial decisions that pension participants make concerns how they access their pension assets when they terminate employment with their plan sponsor. Their choices depend both on own preferences and the options offered by their retirement plan. This paper examines both past and future pension withdrawal choices for those with defined benefit and defined contribution pensions, separately. Our data are drawn from a set of pension distribution questions we fielded in the Understanding American Study. Results show significant differences in distribution choices based on the type of retirement plan, with individuals covered by defined benefit plans significantly more likely to select annuities compared to similar employees covered by defined contribution plans. We also find differences in how higher annual income affects annuity choices based on coverage by DB plans. Individuals with lower levels of financial literacy and lower annual income have less knowledge of basic pension characteristics.
  • Publication
    Overpaying and Undersaving? Correlated Mistakes in Retirement Saving and Health Insurance Choices
    (2022-02-01) Leive, Adam; Friedberg, Leora; Davis, Brent
    Not everyone makes wise financial choices. A large body of research documents behavior inconsistent with well-informed consumers maximizing their expected utility of consumption. It remains unknown, however, whether such behavior is correlated across domains. This paper uses two novel datasets to test whether the quality of health insurance and retirement saving decisions are correlated. Using administrative panel data from a large employer, we find that people who overpay for health insurance by choosing a dominated plan are more likely to forego employer matching funds for retirement saving. One-third of employees overpay for health insurance each year by $1,700 and simultaneously make no voluntary retirement contributions. Over just a few years, these choices result in lost savings equal to 4% of the median net worth of families at retirement. The losses are highest for employees with lower salaries, lower educational attainment, and for women. We find this positive correlation in choice quality across domains generalizes to other settings using a survey linked to administrative data on retirement accounts from 10 employers. This finding suggests consumers could reallocate funds from health insurance to retirement saving without sacrificing consumption. We find empirical support for several mechanisms explaining choice quality and consider implications for policy design to improve household economic security.
  • Publication
    American's debt burden, retirement readiness, and the pandemic
    (2022-02-01) Hasler, Andrea; Lusardi, Annamaria; Mitchell, Olivia S
    This paper analyzes Americans’ perceptions of being debt constrained. We focus on which population subgroups reported feeling most debt constrained, how this perception was impacted by the COVID-19 pandemic, and how it relates to financial literacy and retirement readiness. To this end, we analyze two datasets, namely the 2020 and 2021 TIAA Institute-GFLEC Personal Finance Index files (P-Fin Index). The evidence shows that, prior to and during the pandemic, one in three American adults felt constrained by their debt. The percentage was even higher among vulnerable subgroups such as Black and Hispanic individuals, those lacking a bachelor’s degree, those with lower incomes, and those with low levels of financial literacy. Being debt constrained also has long-term financial consequences, as it is negatively linked to planning and saving for retirement. Finally, we show that financial literacy has a strong connection to both debt and retirement money management, confirming that financial knowledge is essential if people are to be able to manage their debt and build financial well-being.
  • Publication
    Does financial education in high school affect retirement savings in adulthood?
    (2022-02-01) Harvey, Melody; Urban, Carly
    Since individuals are increasingly required to manage their own retirement portfolios, policy levers that increase retirement planning and saving have become increasingly important. We use variation in timing and presence of state-required personal finance coursework in high schools to estimate the effect of the financial education coursework on the likelihood of holding and amount in retirement accounts in adulthood (ages 25–40). Our results show no definitive increases in account ownership, non-retirement investment accounts, or homeownership. Since prior work finds required high school financial education improves credit and debt outcomes, we recommend that states and educators prioritize content that is more immediately relevant for 18-year-olds, such as budgeting, long-term debt, and credit.