The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households

Bernheim, B. Douglas; Garrett, Daniel M.

doi:10.2139/ssrn.451

Cited by 64 publications

(51 citation statements)

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“…Bernheim and Garrett in their study showed that saving rates increase with education, at the same time the study emphasized that low-income individuals have less access to financial education (Bernheim & Garrett, 1996). Other studies, for instance, by Bernheim and Ng suggest that most Americans have relatively limited financial knowledge (Bernheim, 1995;Ng, 1992).…”

Section: Savings In Rural Areasmentioning

confidence: 93%

Financial Literacy of Rural Population as a Determinant of Saving Behavior in Kazakhstan

Gaisina

Kaidarova

2017

Rural Sustainability Research

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Abstract. In rural Kazakhstan, the credit and insurance services are limited and the state support is weak. Therefore, households' saving is crucial to provide an insurance against the economic and social shocks. The main goal of this study is to contribute to the literature on financial literacy in emerging economies, namely, the effect of financial literacy on saving rates of rural population. Being well educated not always means to be financial literate and make efficient decisions regarding one's own finance. People with a lower formal education level but with better experience in consuming financial products could be better prepared for making financial decisions including those related to savings. In this paper other socio-economic determinants of saving rates were taken into account, such as an income level, family size and an employment status. This research was carried out in Pavlodar region of Kazakhstan, and the data collection took place in spring 2014. In total, 405 households were surveyed. Results of the analysis show that if a respondent gives at least one correct answer, it positively affects the saving rates as well as one can observe that the higher the financial literacy level, the higher are the saving rates. Availability of state supported financial education programs for rural people will significantly contribute to the financial literacy improvement. At the same time, providing various and appropriate financial products in rural areas will motivate rural people to search for new knowledge and require authorities to intensify activities in this field.

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Section: Savings In Rural Areasmentioning

confidence: 93%

Financial Literacy of Rural Population as a Determinant of Saving Behavior in Kazakhstan

Gaisina

Kaidarova

2017

Rural Sustainability Research

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“…Bernheim and others on the importance of investor education (Bernheim, 1997;Bernheim and Garrett, 1996). This paper is also related to the more narrowly-defined economic research on 401(k) plans.…”

Section: Ties To the Previous Literature On Savingsmentioning

confidence: 96%

The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior

2000

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In this paper, we analyze the 401(k) savings behavior of employees in a large U.S. corporation before and after an interesting change in the company 401(k) plan. Before the plan change, employees were required to affirmatively elect participation in the 401(k) plan. After the plan change, employees were automatically and immediately enrolled in the 401(k) plan unless they made a negative election to opt out of the plan. Although none of the economic features of the plan changed, this switch to automatic enrollment dramatically changed the savings behavior of employees. We have two key findings. First, 401(k) participation is significantly higher under automatic enrollment. Second, the default contribution rate and investment allocation chosen by the company under automatic enrollment has a strong influence on the savings behavior of 401(k) participants. A substantial fraction of 401(k) participants hired under automatic enrollment exhibit what we call "default" behavior--sticking to both the default contribution rate and the default fund allocation even though very few employees hired before automatic enrollment picked this particular outcome. This "default" behavior appears to result both from participant inertia and from many employees taking the default as investment advice on the part of the company. Overall, these results are consistent with the notion that large changes in savings behavior can be motivated simply by the "power of suggestion." These findings have important implications for the optimal design of 401(k) savings plans as well as for any type of Social Security reform that includes personal accounts over which individuals have some amount of control. They also shed light more generally on the importance of both economic and non-economic factors in the determination of individual savings behavior.

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“…On the contrary, there are several reasons to suspect that eligibility would be significantly correlated with the underlying predisposition to save (Bernheim, 1994c, Engen, Gale, andScholz, 1994 and non-eligibles are often several times as large as 401(k) balances for eligibles (see also Engen, Gale, and Scholz, 1994). Using a more recent cross-sectional household survey sponsored by Merrill Lynch, Bernheim and Garrett (1995) corroborate this finding. Thus, unless one believes that 401(k)s crowd-in other forms of saving at the rate of four or five to one, the evidence must be construed as indicating that eligibility is strongly correlated with the innate inclination to save.…”

Section: Exploiting Exogenous Variation In Eligibilitymentioning

confidence: 87%

“…Bernheim and Garrett (1995) implement this strategy using the Merrill Lynch household survey data, which contains self-reported measures of flow saving (expressed as fractions of income), as well as categories of wealth. They find that 401(k) eligibility is associated with an increase in the retirement saving rate that exceeds the corresponding increase in the overall rate of saving.…”

Section: Exploiting Exogenous Variation In Eligibilitymentioning

confidence: 99%

“…Tax policies that stimulate pensions in general, and especially participant-controlled plans, may also stimulate complementary educational initiatives (see Bernheim and Garrett, 1995, Bayer, Bernheim, and Scholz, 1996, and Employee Benefit Research Institute, 1995. Subtle features of the tax code, such as nondiscrimination requirements, may also encourage employer-based retirement education more directly (in addition to the preceding references, see Garrett, 1995).…”

Section: Other Activities Undertaken By Employersmentioning

confidence: 99%

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Rethinking Saving Incentives

Bernheim

1996

SSRN Journal

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I. IntroductionLow rates of saving in the United States have created widespread concern over investment, growth, the balance of payments, and the financial security of individual households. These concerns have prompted a variety of proposal designed to stimulate saving through tax incentives, ranging from narrowly focused tax-favored savings accounts, to broad-based consumption taxation. Before attempting to weigh the advantages and disadvantages of these proposals, it is important to marshall the available evidence, and review the lessons that economists have learned about the relation (or relations) between tax incentives and personal saving.This paper undertakes a review of the existing academic work in this area. It attempts both to evaluate the evidence, and to identify the important open questions. Although it does not include a full evaluation of any particular saving incentive proposal, it does identify relevant implications.The central conclusions of this review are as follows. First, the traditional life cycle hypothesis has had an excessive influence on the design and conceptualization of empirical investigations concerning the relation between taxation and saving. While other behavioral hypotheses are mentioned in the literature with increasing frequency, this usually occurs in the course of explaining an anomalous result, rather than at the stage of designing an empirical strategy, or even at the stage of evaluating results that do not appear to be anomalous from a lifecycle perspective. In part, this is no doubt attributable to the absence of sufficiently welldeveloped organizing principles for a compelling behavioral alternative. But even in the absence of an intellectually satisfying alternative, it is important to be aware of the potential for reaching misleading conclusions by imposing potentially false structure on the data. Second, there is little reason to believe that households increase their saving significantly in response to a generic increase in the after-tax rate of return. Since the evidence is quite poor, there is still considerable uncertainty on this point. However, it is difficult to identify any robust empirical pattern that is suggestive of a high elasticity., Third, the literature on the relation between Individual Retirement Accounts (IRAs) and personal saving is inconclusive. Studies that point to a large effect on personal saving contain identifiable biases that overstate this effect. Likewise, studies that find little or no effect on personal saving contain identifiable biases that understate the effect. Due to the nature of the IRA program and the characteristics of the available data, reliable estimation of the effect on personal saving may well be impossible. However, the IRA experience does provide reasonably strong evidence that households' responses to narrowly-focused tax incentives are governed, at least in part, by forces that are not considered in the traditional life cycle framework.Fourth, the available evidence on 401(k)s allows one to conclude with moderate ...

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The Determinants and Consequences of Financial Education in the Workplace: Evidence from a Survey of Households

Cited by 64 publications

References 5 publications

Financial Literacy of Rural Population as a Determinant of Saving Behavior in Kazakhstan

Financial Literacy of Rural Population as a Determinant of Saving Behavior in Kazakhstan

The Power of Suggestion: Inertia in 401(k) Participation and Savings Behavior

Rethinking Saving Incentives

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