Abstract

http://ssrn.com/abstract=489693
 
 

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Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving


Shlomo Benartzi


University of California at Los Angeles

Richard H. Thaler


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)


Journal of Political Economy, Vol. 112, No. 1, pp. S164-S187, February 2004

Abstract:     
As firms switch from defined-benefit plans to defined-contribution plans, employees bear more responsibility for making decisions about how much to save. The employees who fail to join the plan or who participate at a very low level appear to be saving at less than the predicted life cycle savings rates. Behavioral explanations for this behavior stress bounded rationality and self-control and suggest that at least some of the low-saving households are making a mistake and would welcome aid in making decisions about their saving. In this paper, we propose such a prescriptive savings program, called Save More Tomorrow (hereafter, the SMarT program). The essence of the program is straightforward: people commit in advance to allocating a portion of their future salary increases toward retirement savings. We report evidence on the first three implementations of the SMarT program. Our key findings, from the first implementation, which has been in place for four annual raises, are as follows: (1) a high proportion (78 percent) of those offered the plan joined, (2) the vast majority of those enrolled in the SMarT plan (80 percent) remained in it through the fourth pay raise, and (3) the average saving rates for SMarT program participants increased from 3.5 percent to 13.6 percent over the course of 40 months. The results suggest that behavioral economics can be used to design effective prescriptive programs for important economic decisions.

Accepted Paper Series


Not Available For Download

Date posted: January 26, 2004  

Suggested Citation

Benartzi, Shlomo and Thaler, Richard H., Save More Tomorrow: Using Behavioral Economics to Increase Employee Saving. Journal of Political Economy, Vol. 112, No. 1, pp. S164-S187, February 2004. Available at SSRN: http://ssrn.com/abstract=489693

Contact Information

Shlomo Benartzi (Contact Author)
University of California at Los Angeles ( email )
D410 Anderson Complex
Los Angeles, CA 90095-1481
United States
310-206-9939 (Phone)
310-267-2193 (Fax)
Richard H. Thaler
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-5208 (Phone)
773-702-0458 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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