MyMoney Resources - Researcher

Abstract: American women tend to be less financially literate than men, which is consistent with a household division of labor in which men manage finances. However, women also tend to outlive their husbands, so they will eventually need to take over this task. Using a new survey of older couples, I find that women acquire financial literacy as they approach widowhood. At an estimated increase of 0.04 standard deviations per year approaching widowhood, 80 percent of women in the sample would catch up with their husbands prior to the expected onset of widowhood. These findings reflect actual increases by women and are not merely an artifact of cognitive decline among older men. The results are consistent with a model in which the household division of labor breaks down when a spouse dies: women have incentives both to delay acquiring financial knowledge and also to begin learning before widowhood. This paper represents the first empirical examination of the financial literacy of both members of couples and provides a life-cycle interpretation of the gender gap in financial literacy.

Many 401(k) retirement plans allow participants to take loans from their accounts before they retire. However, if they have not paid them off before leaving their jobs, they must pay them in full immediately. Based on a large dataset from Vanguard, this study is the first of its kind to quantify how many people take out loans and, of those, how many default. It proposes changes in retirement policy to reduce the financial risk posed by these loans, particularly for vulnerable groups.

This project examines the impact of employer-provided financial education for newly hired workers on contributions to voluntary retirement savings plans. Using administrative data from five large employers, the researchers assess the impact of information and delivery methods on the choice to participate in the plans and the deferral amount selected. The researchers collected additional data from one employer-partner covering the two years before and after their automatic enrollment policy was implemented. Average participation rates increased sharply, while the same fraction of workers took advantage of the full employer match once eligible. The researchers also conducted a survey of newly hired workers. The survey measured employees' understanding of their company's voluntary retirement savings plan, their assessment of the employer-provided information, and their reasons for limited or non-participation. Nonparticipants demonstrated lower overall financial literacy relative to participants, and many respondents felt that the information provided by their employers was not sufficient. Finally, the largest employer-partner, BB&T, implemented a field experiment where an on-line mailing was sent to a random subset of non-participating newly hired workers. Younger workers receiving the flyer were significantly more likely to enroll in the 401(k) plan, while older workers actually had lower initiation rates relative to their control group. The research presented provides insights into the efficacy and importance of financial education provided by employers to newly hired workers and how it impacts their retirement saving decisions.

We evaluate laws designed to protect borrowers from foreclosure. We find that these laws delay but do not prevent foreclosures. We first compare states that require lenders to seek judicial permission to foreclose with states that do not. Borrowers in judicial states are no more likely to cure and no more likely to renegotiate their loans, but the delays lead to a build-up in these states of persistently delinquent borrowers, the vast majority of whom eventually lose their homes. We next analyze a "right-to-cure" law instituted in Massachusetts on May 1, 2008. Using a difference-in-differences approach to evaluate the effect of the policy, we compare Massachusetts with neighboring states that did not adopt similar laws. We find that the right-to-cure law lengthens the foreclosure timeline but does not lead to better outcomes for borrowers.

We present new experimental evidence on heterogeneity in the formation of inflation expectations and relate the variation to economic literacy and demographics. The experimental design allows us to investigate two channels through which expectations-formation may vary across individuals: (1) the choice of information and (2) the use of given information. Subjects who are more economically literate perform better along both dimensions—they choose more-relevant information and make better use of given information. Compared with survey data on inflation expectations, fewer demographic factors are associated with variation in inflation expectations, and economic literacy in most cases accounts for demographic variation in expectations.

Innumerable studies over the past decade have shown that many people lack the basic knowledge of the Social Security system necessary for making informed decisions about when to retire and claim benefits, a decision which will impact their savings and their overall financial security. Accordingly, the Social Security Administration (SSA) seeks to educate and provide information to individuals to help them better understand their options for claiming benefits, how much they can receive, and the implications for personal retirement and financial planning. To gain benchmark information about how much people know about Social Security and the public's attitudes toward the system overall, this project undertook two surveys in the Spring of 2010: a random-digit-dial telephone survey and an internet survey using the American Life Panel (ALP). This report summarizes survey results as well as significant differences between population subgroups. It finds that, in both surveys, levels of Social Security literacy are low: half of all respondents receive a grade of D or F on a quiz testing knowledge of some basic elements of Social Security. Nevertheless, expectations for Social Security are high, as many believe benefits should provide more than just enough for basic necessities. Despite lackluster confidence in the solvency of Social Security, especially among younger respondents, it finds an extremely high level of trust in the SSA and a strong desire for the SSA to provide information not only about how the system works, but also about how to prepare for retirement in general.

Household financial planning can be challenging and household members often lack basic financial literacy skills. This paper discusses the potential and pitfalls of one approach to solving these problems—the development and dissemination of financial guidelines simple enough to be explained in graphic form. The discussion is motivated by the history of nutritional guidelines, namely the Food Pyramid and MyPlate. Financial and nutritional choices share several salient features, including the trade-off between current and future choices, the underlying complexity of the problem, and the auspicious effect that simple rules-of-thumb can provide. We conclude that financial guidelines can be most effective if they meet the following criteria. First, the guidelines should be simple, accurate, and comprehensive. Second, alternative versions of the guidelines should be developed to reflect the divergent economic circumstances of people at different points in the life-cycle, or who for other reasons face different economic situations. Third, the guidelines should be designed to be a focal point for the development of new, appropriate financial products and services. Fourth, the financial guidelines should be widely disseminated from an unbiased source of financial information and planning.

Based on temporal construal theory, the length of time a person has before they reach retirement age will influence how they react to different types of messages. This theory predicts younger workers prefer more abstract communications compared to older workers who should prefer more concrete information because retirement is a distant goal rather than a proximal one. We also directly test how positive and negative message framing, goal timeframes, concreteness of the material presented and an individuals’ age influences an individual’s retirement savings intentions. This paper summarizes our preliminary findings. We test our hypotheses using survey responses gathered after participants view one of several different ads that vary by communication tactics but not by the savings-related information provided. Our initial results indicate that different communication techniques may be more effective with younger workers than older workers and vice versa. In addition, we also find the effectiveness of negative message framing increases when presented in a manner (either abstract or concrete) that is consistent with the way the individual views retirement. Finally, by reducing the goal time frame for younger workers, we find evidence that we may be able to encourage this age group to think more concretely about savings and express stronger intentions to save. Our paper concludes with an outline of our future research plans. Our final results should be helpful when designing communications for targeted age groups.

Abstract: Since the beginning of the recent recession, the employment-population ratio for high-school age youth (16-17 years old) has fallen by nearly a third, to its lowest level ever. However, this recession has exacerbated a longer-run downward trend that actually began in the 1990s and accelerated in the early 2000s. There is little research regarding why teen employment has fallen. Some earlier work emphasized labor supply explanations related to schooling and education, such as an increased emphasis on college preparation (Aaronson, Park, and Sullivan 2006), while others have argued that adult immigrants have crowded out teens, at least in part because adult immigrants and native teens tend to be employed in similar occupations (Sum, Garrington, and Khatiwada 2006, Camarota and Jensenius 2010, Smith 2012). This paper presents updated trends in teen employment and participation across multiple demographic characteristics, and argues that, in addition to immigration, occupational polarization in the U.S. adult labor market has resulted in increased competition for jobs that teens traditionally hold. Testing various supply and demand explanations for the decline since the mid-1980s, I find that demand factors can explain at least half of the decline unexplained by the business cycle, and that supply factors can explain much of the remaining decline.

The Social Security Statement is sent annually to each individual over age 25. The Statement contains information regarding the Social Security program, the individual's past covered earnings and contributions, and an estimate of the individual's future retirement benefits. Given the complexity of the Social Security benefit formula, the Statement represents the best and perhaps only estimate of the benefits to which an individual may be entitled. Knowledge of benefits is important, as individuals must plan their own retirement saving around their Social Security benefits. However, little research has been conducted regarding how effectively the Statement has improved Americans' knowledge of benefit levels. This paper uses data from the Health and Retirement Study to gauge near-retirees' ability to predict their Social Security retirement benefits both before and after the Statement began universal distribution to all near-retirees in 1995. Results are ambiguous. The initial automatic distribution of the Statement did not appear to produce an immediate increase in knowledge of retirement benefit levels. However, continued receipt over a number of years prior to claiming may have reduced individual errors in predicting benefits. Financial literacy with regard to Social Security benefit levels may be improved through greater research into the contexts in which recipients understand and retain the benefit estimates contained in the Statement.