Working Paper: NBER ID: w17927
Authors: Gopi Shah Goda; Colleen Flaherty Manchester; Aaron Sojourner
Abstract: Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrollment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response.
Keywords: retirement saving; exponential growth bias; financial literacy; field experiment
JEL Codes: H3; J14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sending income projections along with enrollment information (I21) | higher probability of individuals changing their contribution levels (D64) |
| individuals who made a change (B31) | increase in annual contributions (D64) |
| full income disclosures (G39) | greater engagement in retirement planning (J26) |
| full income disclosures (G39) | higher certainty about expected retirement income (J26) |
| higher discount rates (E43) | less likely to respond positively to the intervention (C92) |
| higher assumed retirement age (J26) | positively impacts contribution levels (D64) |
| assumed rate of investment return (G11) | no significant effect on saving behavior (D14) |