Working Paper: NBER ID: w17118
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
Abstract: We document the loan provisions in 401(k) savings plans and how participants use 401(k) loans. Although only about 22% of savings plan participants who are allowed to borrow from their 401(k) have such a loan at any given point in time, almost half had used a 401(k) loan over a longer, seven-year horizon. The probability of having a loan follows a hump-shaped pattern with respect to age, job tenure, account balance, and salary, but conditional on having a loan, loan size as a fraction of 401(k) balances declines with respect to these variables. Participants are less likely to use loans in plans that charge a higher interest rate, and loans are smaller when plans allow fewer simultaneously outstanding loans, impose a shorter maximum possible loan duration, or charge a lower interest rate.
Keywords: No keywords provided
JEL Codes: D14; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| age (J14) | probability of having a 401k loan (G51) |
| job tenure (M51) | probability of having a 401k loan (G51) |
| account balance (G21) | probability of having a 401k loan (G51) |
| salary (J31) | probability of having a 401k loan (G51) |
| age (J14) | loan sizes as a fraction of 401k balances (G51) |
| job tenure (M51) | loan sizes as a fraction of 401k balances (G51) |
| compensation (M52) | loan sizes as a fraction of 401k balances (G51) |
| account balance (G21) | loan sizes as a fraction of 401k balances (G51) |
| interest rates (E43) | loan utilization (G51) |
| multiple loans allowed (G51) | loan sizes (G51) |