401(k)s and Household Saving: New Evidence from the Survey of Consumer Finances
Karen M. Pence
Board of Governors of the Federal Reserve System
FEDS Working Paper No. 2002-06
Although households have invested billions in 401(k) accounts, these balances may not be new saving if workers invest money that they would have saved in the program's absence. In this paper, I assess the effect of the 401(k) program on saving by comparing changes in the wealth of 401(k) eligible and ineligible households over the 1989-1998 period using data from the Survey of Consumer Finances (SCF). This comparison may yield misleading estimates of the effect of 401(k)s on saving if eligible households have a higher taste for saving than ineligible households or if they begin the 1989-1998 period with greater amounts of wealth. I adjust for these potential biases by constructing subjective measures of saving taste from questions on the SCF and by transforming the wealth measure with the inverse hyperbolic sine. Incorporating these adjustments suggests that 401(k)s have little to no effect on saving.
Number of Pages in PDF File: 41
Keywords: 401(k) program, saving, wealth data, survey of consumer finances
JEL Classification: H31, H24
Date posted: October 16, 2001
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