Financial Literacy and 401(K) Loans

25 Pages Posted: 12 Nov 2010

See all articles by Stephen P. Utkus

Stephen P. Utkus

Vanguard Center for Investor Research

Jean A. Young

The Vanguard Group, Inc. - Center for Retirement Research

Date Written: October 11, 2010

Abstract

Based on a survey of nearly 900 401(k) participants, we find that borrowing in 401(k) plans is related not only to standard demographic factors, but also to measures of general financial literacy, 401(k) contribution rates and wealth, non-retirement wealth, and credit card repayment behavior. Taken together, these results suggest that the decision to borrow from a 401(k) plan is linked to a broader impatience in financial decision-making, namely high discount rates in time preferences. Meanwhile, conditional on loan-taking, financial literacy appears unrelated to whether a given loan is used for consumption or investment purposes. Given the interrelated nature of these borrowing and behaviors, efforts to educate participants about the benefits and risks of 401(k) borrowing may need to be more comprehensive in scope than previously realized.

Keywords: Participants, Loans, Borrowing, Retirement, Plan, Wealth, Income, Saving, Balance

Suggested Citation

Utkus, Stephen P. and Young, Jean A., Financial Literacy and 401(K) Loans (October 11, 2010). Pension Research Council Working Paper No. 2010-28. Available at SSRN: https://ssrn.com/abstract=1707519 or http://dx.doi.org/10.2139/ssrn.1707519

Stephen P. Utkus (Contact Author)

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

Register to save articles to
your library

Register

Paper statistics

Downloads
109
rank
245,505
Abstract Views
654
PlumX Metrics
!

Under construction: SSRN citations while be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information