fatalism, locus of control and retirement saving
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Fatalism, Locus of Control and Retirement Saving. April, 2010 Miles Kimball and Tyler Shumway. Unexplained Variance in Propensity to Save. Pounder (2006): High and Low Savers? Circumstances, Patience and Cognition - PowerPoint PPT PresentationTRANSCRIPT
Fatalism, Locus of Control Fatalism, Locus of Control and Retirement Savingand Retirement Saving
April, 2010April, 2010
Miles Kimball and Tyler ShumwayMiles Kimball and Tyler Shumway
Unexplained Variance in Unexplained Variance in Propensity to SavePropensity to Save
• Pounder (2006): High and Low Savers? Circumstances, Patience and Cognition – Constructs a ratio of consumption to the present-
discounted value of lifetime resources from HRS data
– In the unconstrained life-cycle theory, this ratio should depend only on life expectancy, rate of return expectations and preferences
– Even after including bequests, health, old HRS cognitive measures, demographics, 73% of variance unexplained
How Do High Savers and Low How Do High Savers and Low Savers Differ in their Traits and Savers Differ in their Traits and
Attitudes?Attitudes?We wanted to look at a wide range of
psychological, sociological and expectational factors and that might affect saving for retirement–Survey Practicum course–Focus groups
• June, 2008 Survey of Consumers• Confirmations and Surprises
Next StepsNext Steps• Repeat the key parts of our survey on the May
2010 Survey of Consumers– Pre/Post-Crash comparison– Larger sample when pooling (with crash dummy)
• Team up with Laurie Pounder to find the correlation of fatalism and locus of control measures and new module financial sophistication with the consumption to full wealth ratio on the HRS.
• Follow up promising leads with a new round of questions on the ALP.
• Suppose you got a (new) job that has a 401(k) retirement savings plan. You can contribute up to ten percent of your pay. For every dollar you put in, your new employer will put in a dollar (twenty-five cents). What percentage of your pay would you choose to contribute?
Employer 100% Match
Employer25% Match
Factor Loading for Contribution
Rate0.849 0.841
Factor Loading for Top Code
Dummy0.835 0.809
• Factor Loading: 0.411
• Compared to people who are similar to you in age, income, and family size, do you think you have:– More retirement savings: 26.4%– About the same amount of ret. savings:
34.8%– Less retirement savings: 35.3%
• Factor Loading: 0.285
• Residual of total savings/income regressed on age, age2
Savings Behavior RegressionsSavings Behavior RegressionsDependent Variable: Participate in 401(k) PlanDependent Variable: Participate in 401(k) Plan
Variable Coefficient p-value
Intercept 0.524 0.4271
Savings Index 0.101 0.0005
Log of Income -0.007 0.8993
West Region 0.015 0.8340
Midwest Region 0.022 0.7317
Northeast Region -0.004 0.9496
Years of Education
0.012 0.3242
Male -0.001 0.9818
Married -0.074 0.2460
Black 0.093 0.3435
Hispanic -0.098 0.3663
Native American 0.435 0.1508
Asian 0.019 0.8996
Homeowner 0.099 0.2602
Age 0.014 0.4151
Age2 0.000 0.3104
143 observations, adjusted R2 = 7.14%
Savings Behavior RegressionsSavings Behavior RegressionsDependent Variable: Pay off credit card balanceDependent Variable: Pay off credit card balance
Variable Coefficient p-value
Intercept 3.320 0.1124
Savings Index 0.503 0.0001
Log of Income 0.121 0.4944
West Region -0.423 0.1361
Midwest Region -0.258 0.3292
Northeast Region -0.415 0.1495
Years of Education
0.049 0.3089
Male 0.047 0.8178
Married 0.010 0.9650
Black -0.591 0.1386
Hispanic -0.422 0.3937
Native American -1.748 0.1438
Asian 0.616 0.3039
Homeowner 0.032 0.9303
Age -0.059 0.1629
Age2 0.001 0.0818
275 observations, adjusted R2 = 11.30%
A Savings Attitude RegressionA Savings Attitude Regression“Thinking about saving money stresses me out”“Thinking about saving money stresses me out”
Dependent Variable: Savings IndexVariable Coefficient Std. Error t-statistic P-value
Intercept -1.932 1.822 -1.06 0.2881
Attitude Var 11 -0.165 0.079 3.15 0.0018
Log of Income 1.116 0.399 2.80 0.0055
West Region 0.668 0.720 0.93 0.3545
Midwest Region -0.497 0.643 -0.77 0.4400
Northeast Region -0.582 0.715 -0.81 0.4164
Years of Education
-0.031 0.119 -0.26 0.7974
Male 0.375 0.507 0.74 0.4604
Married 0.151 0.600 0.25 0.8013
Black -0.967 0.920 -1.05 0.2942
Hispanic 0.238 1.258 0.19 0.8501
Native American 0.053 2.339 0.02 0.9819
Asian -0.592 1.657 -0.36 0.7213
Homeowner 0.805 0.760 1.06 0.2905
Age 0.172 0.110 1.55 0.1212
Age2 -0.001 0.001 -1.11 0.2666
344 observations, adjusted R2 = 9.35%
Variable CodingVariable Coding
Strongly Agree 5
Agree 4
Neither Agree Nor Disagree
3
Disagree 2
Strongly Disagree
1
• The reported percentages generally do not sum to 100 percent because some respondents do not answer each question
• Most of the regressions have about 320 observations
Self-Control and Self-ManagementSelf-Control and Self-Management
• I often make impulse purchases– Strongly Agree: 2.7%– Agree: 25.1%– Neutral: 7.3%– Disagree: 50.7%– Strongly Disagree: 11.1%
Coefficient P-value
Full Saving Factor -0.097 0.0534
401(k) Factor -0.061 0.2243
Self-Control and Self-ManagementSelf-Control and Self-Management
• I can stick with a task until it is done, even if it is unpleasant– Strongly Agree: 16.4%– Agree: 70.6%– Neutral: 4.0%– Disagree: 5.1%– Strongly Disagree: 0.8%
Coefficient P-value
Full Saving Factor 0.100 0.1801
401(k) Factor 0.091 0.2328
Planning, Thinking and BudgetingPlanning, Thinking and Budgeting
• How much have you thought about retirement?– A lot: 37.7%– Some: 27.2%– A little: 15.1%– Hardly at all: 13.5%
Coefficient P-value
Full Saving Factor 0.121 0.0193
401(k) Factor 0.090 0.0803
Planning, Thinking and BudgetingPlanning, Thinking and Budgeting
• I enjoy planning activities like vacations well in advance– Strongly Agree: 30.2%– Agree: 45.3%– Neutral: 8.6%– Disagree: 10.2%– Strongly Disagree: 2.7%
Coefficient P-value
Full Saving Factor 0.084 0.1090
401(k) Factor 0.010 0.8442
Planning, Thinking and BudgetingPlanning, Thinking and Budgeting
• Thinking about saving money stresses me out– Strongly Agree: 3.0%– Agree: 25.9%– Neutral: 7.6%– Disagree: 54.7%– Strongly Disagree: 6.2%
Coefficient P-value
Full Saving Factor -0.250 0.0001
401(k) Factor -0.165 0.0018
Planning, Thinking and BudgetingPlanning, Thinking and Budgeting
• I often wonder, “Where did all my money go?”– Strongly Agree: 5.4%– Agree: 35%– Neutral: 7%– Disagree: 42.9%– Strongly Disagree: 7%
Coefficient P-value
Full Saving Factor -0.100 0.0383
401(k) Factor -0.054 0.2662
Institutional Trust and Institutional Trust and Reliance on OthersReliance on Others
• If I try to save through financial institutions, someone is likely to figure out a way to cheat me out of the money– Strongly Agree: 4.3%
– Agree: 9.4%
– Neutral: 14.3%
– Disagree: 48.3%
– Strongly Disagree: 20.2%
Coefficient P-value
Full Saving Factor -0.117 0.0347
401(k) Factor -0.124 0.0247
Institutional Trust and Institutional Trust and Reliance on OthersReliance on Others
• Whether for political or other reasons, the US government will always make sure that senior citizens have basic food, shelter, clothing and medical care– S. Agree: 4.3%, Agree: 9.4%
– Neutral: 14.3%
– Disagree: 48.3%, St. Disagree: 20.2%
Coefficient P-value
Full Saving Factor 0.090 0.0491
401(k) Factor 0.059 0.2036
Institutional Trust and Institutional Trust and Reliance on OthersReliance on Others
• Even in the worst case, I will be okay financially when I am old because I will have government programs to fall back on– Strongly Agree: 1.9%
– Agree: 11.9%
– Neutral: 11.1%
– Disagree: 55.5%
– Strongly Disagree: 16.7%
Coefficient P-value
Full Saving Factor 0.067 0.2522
401(k) Factor 0.035 0.5570
Institutional Trust and Institutional Trust and Reliance on OthersReliance on Others
• My children will make sure I am okay financially when I am old– Strongly Agree: 1.9%– Agree: 11.9%– Neutral: 11.1%– Disagree: 55.5%– Strongly Disagree: 16.7%
Coefficient P-value
Full Saving Factor -0.048 0.3891
401(k) Factor -0.053 0.3587
Social PressureSocial Pressure• My parents or guardians encouraged me to
save– Strongly Agree: 21.3%
– Agree: 53.9%
– Neutral: 5.4%
– Disagree: 13.5%
– Strongly Disagree: 2.7%
Coefficient P-value
Full Saving Factor -0.040 0.4479
401(k) Factor -0.049 0.3566
Social PressureSocial Pressure• I would feel guilty about going bankrupt, even
if I had to– Strongly Agree: 30.2%
– Agree: 47.4%
– Neutral: 5.7%
– Disagree: 12.1%
– Strongly Disagree: 1.9%
Coefficient P-value
Full Saving Factor 0.033 0.5459
401(k) Factor 0.047 0.3854
Strong JudgmentsStrong Judgments• People who don’t save for retirement are
being irresponsible– Strongly Agree: 24.5%
– Agree: 51.2%
– Neutral: 5.4%
– Disagree: 15.4%
– Strongly Disagree: 0.8%
Coefficient P-value
Full Saving Factor 0.198 0.0004
401(k) Factor 0.146 0.0089
Strong JudgmentsStrong Judgments• Using a credit card without paying off the
balance every month is really stupid– Strongly Agree: 21.3%
– Agree: 47.2%
– Neutral: 8.1%
– Disagree: 19.4%
– Strongly Disagree: 1.1%
Coefficient P-value
Full Saving Factor 0.103 0.0423
401(k) Factor 0.082 0.1090
FatalismFatalism• If you don’t let yourself get too worried,
everything tends to work out in the end– Strongly Agree: 6.7%
– Agree: 45.0%
– Neutral: 10.5%
– Disagree: 32.6%
– Strongly Disagree: 2.4%
Coefficient P-value
Full Saving Factor -0.084 0.0889
401(k) Factor -0.045 0.3733
FatalismFatalism• No one can predict the future, so trying to
save doesn’t do much good– Strongly Agree: 0.8%
– Agree: 4.9%
– Neutral: 2.2%
– Disagree: 61.7%
– Strongly Disagree: 27.8%
Coefficient P-value
Full Saving Factor -0.365 0.0001
401(k) Factor -0.293 0.0001
Locus of ControlLocus of Control• It is difficult to stay ahead financially because
of the things my family members want to buy– Strongly Agree: 1.1%
– Agree: 23.7%
– Neutral: 10.8%
– Disagree: 52.8%
– Strongly Disagree: 8.1%
Coefficient P-value
Full Saving Factor -0.176 0.0010
401(k) Factor -0.129 0.0179
Locus of ControlLocus of Control• Many of the things that keep me from saving
more money are out of my control– Strongly Agree: 6.7%
– Agree: 42.6%
– Neutral: 5.1%
– Disagree: 38.5%
– Strongly Disagree: 4.3%
Coefficient P-value
Full Saving Factor -0.175 0.0002
401(k) Factor -0.126 0.0088
Responses to HypotheticalsResponses to HypotheticalsMatch 1 Dollar 25 Cent
Percent Match Match0 3 141 1 52 6 103 10 224 1 85 39 526 7 127 9 88 6 89 0 110 275 221Total 357 361
• Factor Loading: 0.475• Suppose that the government decided that in
addition to current Social Security taxes, everyone under sixty-five who is working would be required to put an additional ten percent of their pre-tax income into a personal retirement account. How hard would it be for you to adjust to your (and your spouse/partner’s) lower take-home pay – would you say it would be:– Extremely Hard: 12.9%– Quite Hard: 11.9%– Somewhat Hard: 34.0%– Not so hard: 20.2%– Not hard at all: 16.4%
• Factor Loading: 0.237
• Would you vote for such a program?– Yes: 35.6%– No: 60.2%