COVID‐19 Labor Market Shocks and Withdrawals From Retirement Accounts: Understanding the Moderating Role of Financial Knowledge

Sunwoo Lee, Kyoung Tae Kim and Sherman D. Hanna

Journal of Consumer Affairs, 2025, vol. 59, issue 1

Abstract: We explored the relationship between COVID‐19 labor market shocks and the likelihood of hardship withdrawals or plan loans from retirement accounts, which could significantly impact workers' retirement savings. We found that about 14% of working‐age respondents took a hardship withdrawal or plan loan. Those reporting a COVID‐19 labor market shock had odds of a hardship withdrawal as much as 3.8 times as high as otherwise comparable respondents who did not have a shock. Additionally, we found that the relationship to a COVID‐19‐related labor shock was moderated by the objective and subjective financial knowledge of individuals, suggesting a potential role for financial education in alleviating retirement risks. A notable finding is that respondents exhibiting financial knowledge overconfidence were more likely to take a plan loan or a hardship withdrawal than those with appropriate levels of confidence or low levels of confidence. This study offers important insights for policymakers, educators, and practitioners.

Date: 2025
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