Do Financial Literacy and Mistrust Affect 401(K) Participation?
Posted: 8 Mar 2010
Date Written: November 1, 2007
The private pension landscape has changed dramatically over the past quarter century, with a decisive shift away from traditional defined benefit plans toward defined contribution plans, primarily 401(k)s. Under the typical 401(k), individuals are responsible for making their own retirement saving decisions. The first, and most important, decision is whether to participate in the plan. As many as one-third of participants choose not to join, sparking concern about their retirement security.
Many researchers have explored why employees fail to participate in 401(k)s. Potential reasons include economic factors, such as insufficient income, as well as behavioral explanations, such as procrastination. Meanwhile, recent efforts to understand financial decision-making more broadly have focused on the role of financial literacy. And researchers attempting to understand banking and other financial relationships have drawn attention to the role of mistrust in influencing individuals' choices...
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