Literacy, Trust and 401(K) Savings Behavior

33 Pages Posted: 11 Nov 2008

See all articles by Julie R. Agnew

Julie R. Agnew

College of William and Mary - Mason School of Business

Lisa Szykman

affiliation not provided to SSRN

Stephen P. Utkus

Vanguard Center for Investor Research

Jean A. Young

The Vanguard Group, Inc. - Center for Retirement Research

Date Written: May 2007

Abstract

At three large firms offering 401(k) plans, we assess the impact of financial literacy and trust on 401(k) savings behavior in voluntary and automatic enrollment 401(k) plans. Financial literacy plays a critical role in improving 401(k) savings behavior - it reduces both the proportion of non-joiners in voluntary 401(k) plans and the proportion of quitters in automatic enrollment plans. Trust is critical as well in improving quit rates in automatic enrollment plans. Both financial literacy and trust appear to have more sizeable marginal effects than do those from income. We also find no initial evidence that non-participants are low-income rational agents who fail to participate in a 401(k) plan due to anticipated income support from Social Security. Our findings underscore the importance of ongoing workplace education for both voluntary and automatic enrollment plans and highlight the unique issue of trust in automatic enrollment plans.

Suggested Citation

Richardson Agnew, Julie and Szykman, Lisa and Utkus, Stephen P. and Young, Jean A., Literacy, Trust and 401(K) Savings Behavior (May 2007). Available at SSRN: https://ssrn.com/abstract=1299171 or http://dx.doi.org/10.2139/ssrn.1299171

Julie Richardson Agnew (Contact Author)

College of William and Mary - Mason School of Business ( email )

P.O. Box 8795
Williamsburg, VA 23187-8795
United States

Lisa Szykman

affiliation not provided to SSRN ( email )

Stephen P. Utkus

Vanguard Center for Investor Research ( email )

100 Vanguard Boulevard, M38
Malvern, PA 19355
United States
610-669-6308 (Phone)

Jean A. Young

The Vanguard Group, Inc. - Center for Retirement Research ( email )

PO Box 1110
Valley Forge, PA 19482-1110

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