Working Paper: NBER ID: w20937
Authors: Kai Yuan Kuan; Mark R. Cullen; Sepideh Modrek
Abstract: The wealth gap has reached record highs. At the same time there has been substantial proliferation of 401(k) savings accounts as the dominant retirement savings vehicle, and these accounts make up an increasing proportion of overall wealth. In this paper we examine 401(k) saving behavior of continuously employed workers over an eight-year period at a single, geographically diverse employer. We demonstrate substantial difference in 401(k) savings behavior by employee ethnicity even within a single employer 401(k) plan architecture. We show both African American and Hispanic employees are less likely to participate in the 401(k) plans. Moreover, conditional on participation African Americans contribute a lower proportion of their income to their 401(k) plan on average. We also show that African Americans and Hispanics tend to draw down on their 401(k) balances more often. Finally, we document that both African Americans and Hispanics favor safer assets within their plan options. Together these differences substantially impact the level of 401(k) balances accumulated and therefore overall wealth accumulation.
Keywords: 401k; savings behavior; racial disparities; wealth gap; financial literacy
JEL Codes: D14; D31; I31; J11; J32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Race (African American and Hispanic) (J15) | Participation in 401k plans (D14) |
| Race (African American) (J15) | Contribution to 401k plans (D14) |
| Race (Hispanic) (J15) | Contribution to 401k plans (D14) |
| Race (African American) (J15) | Withdrawals from 401k accounts (G51) |
| Race (African American) (J15) | Loans from 401k accounts (G51) |
| Race (African American) (J15) | Contribution to stock funds (G23) |
| Race (Hispanic) (J15) | Contribution to stock funds (G23) |
| Race (African American and Hispanic) (J15) | Overall wealth accumulation (E21) |