In your research you discovered that reducing two psychological tendencies — present bias and exponential growth-bias — would lead to an increase in overall retirement savings. How do you and other scholars and researchers anticipate reducing these tendencies? Who is most at risk to succumb to these psychological tendencies?
Yeah, so in some of the research that I have done, we’ve found a pretty big association between whether someone is exponentially growth biased or present biased with their overall level of retirement wealth accumulated. And exponential growth bias is essentially the idea that people may underestimate the level of exponential growth going into the future, and lead them to potentially under-save if they sort of misunderstand this tie between how much I save now and how much you’ll accumulate in the future. Present bias is sort of a technical way to describe the idea of procrastination. So if you are able to measure someone’s procrastination tendencies, it seems that people who show more procrastination tendencies tend to also have lower levels of retirement wealth accumulated.
So in ongoing work, we’re trying to think about interventions that can sort of address both of these psychological tendencies, and see if they can help people overcome these tendencies. So the idea for exponential growth bias is to provide people with easy-to-use tools that allow them to understand their contributions and the tie between those contributions and retirement income. And for present bias, we also want to explain the cost of delaying those contributions into the future. So the idea is, if you tell people about how much more you would have to contribute if you started five years from now to reach a certain goal rather than today, that that might sort of impact those who are more — have these procrastination tendencies to start saving today rather that in the future. So what we hope to do is look at the impacts of these kinds of interventions in a random — randomized control trial, and also see whether they have differential impacts among those who before the start of our study, exhibited some tendencies toward exponential growth bias or present bias, respectively.
One thing that is interesting that we found from our previous research is that these two tendencies are not so highly correlated with a lot of the other things, that a lot of — the other observable characteristics that we can look at. So it’s not that there is a particular demographic that seems to be very likely to exhibit either exponential growth bias or present bias. It seems that these characteristics are — are sort of uncorrelated with a lot of things like gender, race, ethnicity, income, education, in a way that makes it hard to detect if you don’t have a way to sort of measure exponential growth bias. And so what we’re hoping is that these kinds of interventions can really target those who are exponentially growth biased or present biased in ways that can improve sort of overall saving outcomes.
Your research showed that after age 60, there are disincentives to remain in the labor force. However, with the average lifespan increasing, people are both wanting and needing to stay employed. What are the implications of the aforementioned finding, considering people are going to work for more years now than ever?
So I think there’s a strong case to make for policy interventions that can keep a lot of the systems like Social Security or disability insurance at the same level of generosity that they are now, but sort of tilt the incentives so that they favor people who work longer careers rather than people who work shorter careers. So in the Social Security system right now, once you work 35 years, your additional years of earnings don’t increase your benefit by nearly as much as say the 33rd, and 34th, and 35th year of earnings. And so one way to change that would be to either extend that 35 to something like 40 and extend the amount of time that your earnings sort of count towards your future benefits. And other ways to do that would be to change the way the formula sort of computes benefits for people with shorter careers in a way that provides more incentive for people to work longer. So I think that despite the fact that most of the policy attention for these programs is focused on ways to address the actuarial short fall, I think there are a lot of other policies that might be, ought to be considered, if there’s any kind of reform package to make the incentives more in line with people working longer and extending their working life. And I think there are a lot of possibilities of doing that within the existing framework just by, you know, tweaking few aspects of the program. That could be beneficial.
Currently, millennials have a debt 5 times higher than college graduates from fifteen years ago; will they and future generations have the means to invest in a stable retirement?
So I agree that debt for current generations of college graduates is higher than it used to be, and it’s — it’s something that probably needs to be addressed before you can really think about saving for retirement. So it doesn’t make sense for people to save for retirement if they have an existing amount of debt, and, you know, student debt is typically not terribly high-interest rates, but credit card interests rates are very high. And if — it would be very — it seems like it would be a mistake for someone to sort of put money in a 401(k) account if they’re not paying down their debt. On the flip side, if they don’t put money in their 401(k) account, they might be foregoing some match from their employer, and, their other tax benefits doing that. And so, you know, addressing debt is really important. I think it’ll be increasingly important as we think about financial security for future generations. And I think educating people about the returns to saving in their 401(k) might provide some incentives to tackle the debt earlier rather than later.
The Sightlines Project at Stanford: http://longevity.stanford.edu/the-sightlines-project/
Pages: 1 · 2
More Articles
- Facing Financial Ruin as Costs Soar for Elder Care
- Women's Health and Aging Studies Available Online; Inform Yourself and Others Concerned About Your Health
- Women's Labor Force Exits During COVID-19: Differences by Motherhood, Race, and Ethnicity
- Sheila Pepe, Textile Artist: My Neighbor’s Garden .... In Madison Square Park, NYC
- Congressional Budget Office: Federal Budget Deficit Totals $1.4 Trillion in 2023; Annual Deficits Average $2.0 Trillion Over the 2024–2033 Period
- "Henry Ford Innovation Nation", a Favorite Television Show
- High Inflation and the Outlook for Monetary Policy By Federal Reserve Governor Michelle W. Bowman
- National Institutes of Health: COVID-19 Vaccines Linked to Small Increase in Menstrual Cycle Length
- Ask KHN (Kaiser Health News) - PolitiFact: Is My Cloth Mask Good Enough? The 2022 Edition
- Jo Freeman Reviews: Gendered Citizenship: The Original Conflict Over the Equal Rights Amendment, 1920 – 1963