What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving
Colleen Flaherty Manchester and
Aaron Sojourner ()
No 17927, NBER Working Papers from National Bureau of Economic Research, Inc
Recent findings on limited financial literacy and exponential growth bias suggest saving decisions may not be optimal because such decisions require an accurate understanding of how current contributions can translate into income in retirement. This study uses a large-scale field experiment to measure how a low-cost, direct-mail intervention designed to inform subjects about this relationship affects their saving behavior. Using administrative data prior to and following the intervention, we measure its effect on participation and the level of contributions in retirement saving accounts. Those sent income projections along with enrollment information were more likely to change contribution levels and increase annual contributions relative to the control group. Among those who made a change in contribution, the increase in annual contributions was approximately $1,150. Results from a follow-up survey corroborate these findings and show heterogeneous effects of the intervention by rational and behavioral factors known to affect saving. Finally, we find evidence of behavioral influences on decision-making in that the assumptions used to generate the projections influence the saving response.
JEL-codes: H3 J14 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-age and nep-exp
Note: AG PE
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Published as Goda, Gopi Shah & Manchester, Colleen Flaherty & Sojourner, Aaron J., 2014. "What will my account really be worth? Experimental evidence on how retirement income projections affect saving," Journal of Public Economics, Elsevier, vol. 119(C), pages 80-92.
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Journal Article: What will my account really be worth? Experimental evidence on how retirement income projections affect saving (2014)
Working Paper: Do Income Projections Affect Retirement Saving? (2013)
Working Paper: What Will My Account Really Be Worth? An Experiment on Exponential Growth Bias and Retirement Saving (2012)
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