Voluntary Retirement Savings: The Case of Australia

The shift to defined contribution plans has increased concerns about retirement adequacy for the working population. Different from prior research in countries where retirement savings are voluntary, this study explored the drivers of additional savings within the Australian superannuation system where mandatory savings are in place. Results suggested that age, economic and financial status, and job characteristics are important indicators for voluntary superannuation savings. Affordability, false beliefs, and lack of awareness about retirement savings inhibit participation. Past saving habits and retirement planning positively affect voluntary retirement savings. Joint modelling of pre- and post-tax savings decisions suggested a substitution effect between the two, adding new evidence to the literature.     

Financial Strain and Participation in the Supplemental Nutrition Assistance Program

Participation in the Supplemental Nutrition Assistance Program (SNAP) has increased over the past decade. Although poverty and sudden financial shock faced by households via unanticipated adverse events, such as sudden loss of income, are among major contributors, the findings of our study suggest that having an adequate stock of savings and financial assets might reduce the probability of household SNAP participation. Using data from the Panel Study of Income Dynamics, we tested whether a household’s emergency savings, asset poverty, and debt burden could predict SNAP participation separately from the effects of income and program participation. Results demonstrate that a household’s lack of emergency savings and asset inadequacy increased the probability of its SNAP participation. Implications for financial practitioners and policy makers are discussed.     

Social Capital, Savings, and Educational Performance of Orphaned Adolescents in Sub-Saharan Africa

We examine the impact of social capital on savings and educational performance of orphaned adolescents participating in a family-level economic strengthening program in Uganda. Findings indicate that if given the opportunity, poor families in Uganda will use financial institutions to save for the education of their adolescent youth. Moreover, although the results are mixed, overall, adolescents with higher levels of social capital and social support, including participation in youth groups, are likely to report better saving performance compared to their counterparts with lower levels of social capital and social support. The results point to: (1) the role for family-economic strengthening programs specifically focused on improving the educational outcomes of orphaned adolescents in sub-Saharan Africa, and (2) the need for adolescents to be encouraged to participate in youth groups since these groups seem to offer the much needed supportive informal institutional structure for positive adolescent outcomes.     

The Factors Influencing Saving in a Matched Savings Program: Goals,Knowledge of Payment Instruments,and Other Behavior

This paper explores the saving behavior of the group of low-income households that have participated in the Australian Saver Plus matched savings program. The paper finds that a dynamic panel model represents a good technique for modeling the savings account balances of such participants. We find that, even after controlling for the unobservable individual response to the program incentive, the saving goal and education/financial literacy variables play a positive role in encouraging saving behavior. More importantly however, we find that programs such as Saver Plus are able to modify the saving behavior of individuals to the point where their prior behavior and their inherent attitude towards saving no longer play a significant role.

Financial Capability in Children: Effects of Participation in a School-Based Financial Education and Savings Program

A groundswell of interest in young people’s ability to understand and handle financial decisions has generated keen interest in financial knowledge and effectiveness of financial education. This study examines an innovative four-year school-based financial education and savings program, called “I Can Save” (ICS). Using a quasi-experimental design, the study examines quantitative and qualitative data to analyze program effects on financial knowledge. Elementary school children who participated in ICS scored significantly higher on a financial literacy test taken in fourth grade than comparison group students in the same school, regardless of parent education and income. Results suggest that young children increase financial capability when they have access to financial education and it is accompanied by participation in meaningful financial services.     

Asset Building in Rural Communities: The Experience of Individual Development Accounts*

Abstract This study examines the unique experiences of low‐income rural participants in an asset building program‐the Individual Development Account. Using data from the American Dream Demonstration, this study addresses three main questions: (1) What are the individual characteristics associated with saving outcomes among rural IDA participants? (2) What are the program characteristics associated with savings among rural participants? (3) What are the policy implications for supporting asset building in rural areas? To answer these questions we conduct an Ordinary Least Squares regression analysis. The results suggest that low‐income rural participants have the ability and willingness to save toward the accumulation of assets in IDAs. Looking at individual characteristics, home ownership appears to be an important predictor of savings. In addition, this study suggests that program characteristics (financial education, peer group meetings, match rate, direct deposit, and monthly saving target), not merely individual characteristics, are important in explaining saving performance for this group.     

Saving regret and procrastination

In countries, where a substantial proportion of retirement income rests on savings, there is much concern that a sizeable fraction of the population reaches retirement with insufficient financial resources. We define saving regret as the wish in hindsight to have saved more earlier in life. We measured saving regret and possible determinants in a survey of U.S. households in which respondents were aged 60–79. We find high levels of saving regret, affirmed by some 58%. Saving regret exhibits significant and plausible correlations with personal characteristics and wealth: Married, older, healthier and wealthier respondents are less likely to report saving regret, suggesting the measure’s validity. We find only weak evidence for correlations between saving regret and measures of procrastination: persons with traits associated with procrastination express saving regret about as often as those without those traits.     

A socially responsible financial institution – The bumpy road to improving consumer well-being

There is a strong belief that in addition to making a profit, companies should act for the benefit of the society. This research has evaluated a novel cooperation model between a non-profit financial institution and a community service provider (a local YMCA) with the overarching aim of advancing customers’ well-being. By offering a financial incentive (a savings account with higher interest payouts, contingent on account holders’ increased participation in YMCA activities), the financial institution and the YMCA partnered to improve consumers’ financial standing, positive health behaviors, and overall well-being. The collaboration exemplified a business engagement in the community that goes beyond philanthropy.Participation in YMCA activities was found not to be influenced by the financial incentive. However, households participating in the program swiftly transferred their financial resources to the incentivized account and along with that increased their activity in YMCA to boost the interest rate. Sport-related YMCA visits had some positive effects on momentary well-being, but none were observed for non-sport-related activities. Furthermore, the incentivized activities did not translate into improved well-being outcomes but had a potential to positively contribute to emergency savings. The evidence from qualitative feedback from in-depth participant interviews pointed to a reverse effect of the incentive, where YMCA engagement was a trigger for setting up the savings account.The findings have corroborated the understanding that designing interventions that target customers’ well-being is not a straightforward task.     

Building Financial Knowledge Is Not Enough: Financial Self-Efficacy as a Mediator in the Financial Capability of Low-Income Families

ABSTRACT

Policymakers in many countries have taken an interest in population-level financial capability. Limited empirical work has examined how constructs that makeup financial capability relate and how they function for individuals with low incomes. Using a national sample of low-income Canadians, we investigate relationships between financial knowledge, financial self-efficacy, and savings outcomes. Overall, we find that financial self-efficacy fully mediated the relationship between objective financial knowledge and postsecondary-education saving. The association between objective financial knowledge and retirement saving and emergency saving passed through financial self-efficacy. Efforts to promote financial capability need to focus on more than objective financial knowledge.     

Educational Status and Savings Performance in Individual Development Accounts

Abstract

This study examines the relationship between education and savings performance in Individual Development Accounts (IDAs), a matched savings program for the poor. Based on economic and institutional theories of savings, we further investigate whether the relationship between education and savings is mediated by income, intended uses of IDAs, or program factors. The data of this study are from the American Dream Demonstration (N = 2,150), the first national demonstration of IDAs. The results indicate that education was positively related to savings after controlling for program factors and other individual characteristics. Household income and two program factors, monthly savings target and financial education, partially mediated the relationship between education and savings outcomes. These results provide some support for both economic and institutional theories of savings among low-income people. The findings also may help design and implement more effective savings programs for the low-income population and its varying segments.     

Does Prior Banking Experience Matter? Differences of the Banked and Unbanked in Individual Development Accounts

Using data from the 4-year American Dream Demonstration, this study compares saving performance and program participation of banked (n = 1,538) and unbanked participants (n = 466) enrolled in 14 IDA programs. The study shows banked participants had $2.74 higher average monthly net deposit (p < 0.05); 5% higher deposit frequency (p < 0.001); and 42% less odds of drop out than unbanked participants (p < 0.001). Moreover, program characteristics such as financial education, monthly saving targets, peer group meetings, and direct deposit are important predictors of program performances. Individual characteristics such as race/ethnicity, home ownership, and income are significantly associated with program performance.     

Factors affecting completion of a matched savings program: Impacts of time preference,discount rate,and financial hardship

There is a general consensus among researchers and policymakers that matched savings programs can significantly increase the propensity to save among low-income households. This study offers a unique contribution to the field by testing whether principals and theories from behavioral economics affect the decisions that participants make in these savings programs. Using a sample of people participating in the $aveNYC program, a matched savings program for very low-income households, we test whether information failure, time preference, and financial hardship affected people's ability to complete the program and receive the match money. We find that future orientation does not significantly impact program completion, but both information failure and financial hardship increase the hazard of early account closure. Although the pool of participants who did not receive the match was small, both information failure and financial hardship had large impacts on the risk of withdrawing the account before receiving a match. We discuss how these findings can inform program design and suggest future research.     

Saving out of Remittances: Evidence from Ethiopia and Kenya

This article examines the saving behaviour of remittance recipients in Ethiopia and Kenya. The few existing estimates of savings from remittances, often obtained indirectly using expenditure analysis, vary widely. The analysis presented here relies on ordinal saving categories reported in response to a direct survey question. The results reveal that the savings rate is higher in Kenya than Ethiopia, in the raw data and the multivariate model, although in both countries it rises with receipt size. Interestingly, gender is a robust predictor of differential savings, albeit with a contrasting pattern: women save more than men in Ethiopia, while the reverse is true in Kenya. In other results, a pre‐migration agreement about remittances has a strong positive effect on savings. Savings rates are also positively associated with financial inclusion in Ethiopia and formal channel flows in Kenya. Many of these results are confirmed by analysis of broader forms of saving/investment.     

Overcoming Inertia: Do Automated Saving and Investing Strategies Work?

Many workers do not take advantage of savings opportunities provided to them at their workplace, nor do they always make wise investment decisions regarding employer plans. Various automated strategies have been implemented by employers with the objective of increasing retirement plan participation and, hence, the financial security of workers. Automatic strategies work by proactively arranging some type of action (e.g., plan enrollment) to occur unless people specifically opt out. This article examines and synthesizes previous empirical research about five automatic savings and investing strategies: (a) automatic retirement savings plan enrollment, (b) automatic contribution increases, (c) automatic portfolio rebalancing, (d) automatic rollovers, and (e) automatic investment plans. Advantages and disadvantages of each strategy are discussed, along with implications for financial educators.     

Financial Literacy,Human Capital and Stock Market Participation in Europe

Households’ stock market participation has significant effects on savings and on an economy’s financial development and performance. Yet participation into capital markets is limited and quite heterogonous both among and within several countries. This phenomenon represents an empirical puzzle whose understanding is rather incomplete. In this work, we exploited a combination of datasets for nine European countries and used different econometric specifications that allow to control for endogeneity of financial literacy and human capital, to assess the role of several variables in affecting the probability to participate in the stock market in year 2010. Besides socio-demographic variables, we found that financial literacy has a positive and significant effect on stock market participation, together with the level of human capital and social interaction. Country level differences are explained by such institutional factors as the effectiveness of the education system and by the attractiveness of the stock markets.     

Ineligible to Save? Asset Limits and the Saving Behavior of Welfare Recipients

ABSTRACT

This article explores how asset limits used to determine eligibility for the Temporary Assistance for Needy Families (TANF) program influence the saving behavior of program participants. The qualitative evidence presented in this study serves to explain how asset limit policy may contribute to the low rate of savings and bank account ownership among the welfare population. From these conversations, it is clear that the existence of asset limits—or, just as importantly, the perception that these limits exist—negatively impacts the saving behavior of TANF recipients.     

Emergency Saving and Household Hardship

Households with limited income and wealth often struggle to access the financial liquidity needed to address unexpected expenses or income drops. Emergency savings can act as form of insurance against such economic shocks and reduce the risk of hardships that influence family wellbeing. Prior research has established that threshold amounts of liquid assets can reduce the risk of economic hardship. This study used a measure of self-reported emergency saving behavior to examine whether households who reported saving for emergencies were less likely to experience subsequent economic hardships in a longitudinal sample of households in disadvantaged neighborhoods from the Annie E. Casey Foundation’s Making Connections project. Results across a range of regression models suggest that households who saved for emergencies experienced slightly less overall hardship and were less likely to report several specific hardships, such as food insecurity and having a phone disconnected, three years later. This study supports the idea that small, unrestricted savings may play a protective role for low-income households.     

Psychological, social and economic determinants of saving: comparing recurrent and total savings

Saving is of interest to psychologists and economists because of its importance to both the individual and the economy. Economic theories have traditionally acknowledged psychological factors in saving such as self-control, fear of economic uncertainty and pessimism about the economy. Katona (1975) has been particularly influential in suggesting that people's beliefs about the economy mediate their saving. However, subsequent attempts to predict savings using economic and psychological variables have met with limited success. The present study used a wide range of economic, demographic and psychological variables to distinguish between savers and non-savers and to predict recurrent saving and total savings. Two hundred and seventy-nine people completed in-depth surveys of their economic conditions, their social background and a variety of psychological predictors. Discriminant function analysis was used to discriminate between savers and non-savers. A variety of psychological factors discriminated those who save regularly from those who do not. Using multiple regression analysis, both recurrent and total saving were predicted by economic variables, recurrent saving was predicted also by psychological variables and total savings by demographic variables. Implications for the role of psychological factors in saving are discussed.     

Supplemental Retirement Savings Plans in the Public Sector: Participation and Contribution Decisions by School Personnel

Virtually all full-time state and local government employees are covered by a retirement plan, typically a defined benefit plan, in which they are required to participate. In addition, most school employees have the option of choosing to contribute to a voluntary retirement savings plan offered by their school district. Relative to private sector workers, public employees face an expanded choice of retirement savings plans. Federal tax policies allow state and local governments the opportunity to offer both 401(k) plans and 457 plans to their employees. In addition to these plans, public schools and certain other organizations can offer 403(b) plans to their employees. This paper examines the decision to participate in a voluntary savings plan and the level of contributions for those that enroll in at least one of the plans. The analysis begins by describing the savings options available to public school employees and how these plans differ. The findings indicate that the same economic and demographic factors that influence saving decisions by private workers also drive the decisions of school employees. The three savings plans offered to public employees have many similar characteristics; however, several differences in the plans imply that certain workers may prefer one plan type over the others. Probit and Tobit models of participation in any plan and total annual contributions are estimated. Finally, we estimate the determinants of the decision to choose any one or a combination of savings plans.