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

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  • Pence, Karen M.

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.

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  • Pence, Karen M., 2002. "Nature or Nurture: Why Do 401(K) Participants Save Differently Than Other Workers?," National Tax Journal, National Tax Association;National Tax Journal, vol. 55(3), pages 597-616, September.
    • Handle: RePEc:ntj:journl:v:55:y:2002:i:3:p:597-616
    DOI: 10.17310/ntj.2002.3.11
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    Cited by:

    1. Tansel, Aysit & Öztürk, Ceyhan & Erdil, Erkan, 2021. "The Impact of Body Mass Index on Growth, Schooling, Productivity, and Savings: A Cross-Country Study," IZA Discussion Papers 14727, Institute of Labor Economics (IZA).
    2. Mitchell, Olivia S. & Utkus, Stephen P. & Yang, Tongxuan (Stella), 2007. "Turning Workers Into Savers? Incentives, Liquidity, and Choice in 401(K) Plan Design," National Tax Journal, National Tax Association;National Tax Journal, vol. 60(3), pages 469-489, September.
    3. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters, in: Tax Policy and the Economy, Volume 22, pages 5-41, National Bureau of Economic Research, Inc.
    4. Karen E Dynan & Donald L Kohn, 2007. "The Rise in US Household Indebtedness: Causes and Consequences," RBA Annual Conference Volume (Discontinued), in: Christopher Kent & Jeremy Lawson (ed.),The Structure and Resilience of the Financial System, Reserve Bank of Australia.
    5. Karen E. Dynan & Donald L. Kohn, 2007. "The rise in U.S. household indebtedness: causes and consequences," Finance and Economics Discussion Series 2007-37, Board of Governors of the Federal Reserve System (U.S.).
    6. Ellis Connolly, 2007. "The Effect of the Australian Superannuation Guarantee on Household Saving Behaviour," RBA Research Discussion Papers rdp2007-08, Reserve Bank of Australia.
    7. Callan, Tim & Keane, Claire & Walsh, John R., 2009. "Pension Policy: New Evidence on Key Issues," Research Series, Economic and Social Research Institute (ESRI), number RS14.

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