Nature or Nurture: Why Do 401(K) Participants Save Differently Than Other Workers?

Abstract:

Participants in 401(k) plans are more likely than other workers to list "retirement" as their main reason for saving, to hold individual retirement accounts, and to invest in the stock market. There are two possible reasons for these differences: (1) workers who like to save choose to participate in the program; or (2) 401(k) participation educates workers about investing. I find some support for both explanations using data from the 1983-1989 Survey of Consumer Finances. These results have important implications for proposals to partially privatize the Social Security system. First, 401(k) participants are different from the work force as a whole: they have more income and education, and most importantly, a greater interest in saving for retirement. Extrapolating from their saving behavior to that of the workforce at large could be misleading. Second, the education provided by 401(k) participation appears to have only a modest effect on saving behavior, suggesting that this education alone may not fully address concerns about the savvy of American savers.

Citation

Pence, Karen M. (2002), Nature or Nurture: Why Do 401(K) Participants Save Differently Than Other Workers?, National Tax Journal, 55:3, pp. 597-616

DOI: dx.doi.org/10.17310/ntj.2002.3.11