Working Paper: NBER ID: w21461
Authors: Robert Clark; Annamaria Lusardi; Olivia S. Mitchell
Abstract: This paper uses administrative data on all active employees of the Federal Reserve System to examine participation in and contributions to the Thrift Saving Plan, the system’s defined contribution (DC) plan. We have appended to the administrative records a unique employee survey of economic/demographic factors including a set of financial literacy questions. Not surprisingly, Federal Reserve employees are more financially literate than the general population; furthermore, the most financially savvy are also most likely to participate in and contribute the most to their plan. Sophisticated workers contribute three percentage points more of their earnings to the DC plan than do the less knowledgeable, and they hold more equity in their pension accounts. Finally, we examine changes in employee plan behavior a year after the financial literacy survey and compare it to the baseline. We find that employees who completed an educational module were more likely to start contributing and less likely to have stopped contributing to the DC plan post-survey.
Keywords: financial literacy; retirement savings; defined contribution plans
JEL Codes: D91; J26; J32; J33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial literacy (G53) | Participation in DC plan (H55) |
| Completion of educational module (Y20) | Start contributing to DC plan (G51) |
| Completion of educational module (Y20) | Stop contributing to DC plan (J26) |
| Higher scores on financial literacy assessments (G53) | Contribution to DC plan (J32) |
| Financial literacy (G53) | Behavior in retirement savings (D14) |