0 Conference on “How to Increase the Effectiveness of Financial Education” at Dartmouth College Published in the Journal of Behavioral Finance, 2005, Vol.

Slides:



Advertisements
Similar presentations
Saving and Investing Tools Carl Johnson Financial Literacy Jenks High School.
Advertisements

FINANCIAL EDUCATION AND RETIREMENT PLANNING Robert Clark North Carolina State University.
Effects of Identity Processes on College Student Self Esteem, Self Efficacy, and Satisfaction with College Self Efficacy, and Satisfaction with College.
1 Who Chooses Defined Contribution Plans? Jeffrey R. Brown University of Illinois and NBER Scott J. Weisbenner University of Illinois and NBER RRC Annual.
Do College Students Perceive Healthier Food as Being More Expensive? Evaluating How Perceptions Can Affect Food Choice SIERRA S. HOWRY, A. DEAN MONROE:
The relationship between level of religious devotion and marital satisfaction Amanda Caddell Kevin Utt.
Konan Chan Fengfei Li National Chengchi University University of Hong Kong Tse-Chun Lin Ji-Chai Lin University of Hong Kong Louisiana State University.
Tamara D. Williams.   This study explores the variances, specifically gender and minority status, predictors, and theories associated with the availability.
Exploring factors that influence social retail investors: Evidence from Desjardins Fund Responsible Investing Initiative Webinar March 26 th 2013 Tessa.
Copyright © 2008 Pearson Addison-Wesley. All rights reserved. Chapter 5 The Theory of Portfolio Allocation.
Bank Employee Incentives and Stock Purchase Plans Participation Thomas Rapp, PhD Nicolas Aubert, PhD 1.
Business Statistics for Managerial Decision
1 Fin 2802, Spring 10 - Tang Chapter 24: Performance Evaluation Fin2802: Investments Spring, 2010 Dragon Tang Lectures 21&22 Performance Evaluation April.
Method IntroductionResults Discussion Effects of Plans and Workloads on Academic Performance Mark C. Schroeder University of Nebraska – Lincoln College.
MUTUAL FUND RATINGS: DO THEY REALLY MATTER? Philip S. Russel Philadelphia University, USA 2006 PBFEA Conference, Taipei, Taiwan Research Funded by: Lindback.
Engaging a Diverse Set of Students in Healthcare Economics Bruce Brown, Cal Poly Pomona Objectives Course Major, Weights, and Performance Risk Attitudes.
Article 48 The Importance of Brand Cues in Intangible Service Industries: An Application to Investment Services By: Michael K. Brady, Brian L. Bourdeau,
The Art and Science of Marketing
Product Perception By Michelle Olguin & Karen Dambroski Undergraduate Students Fort Lewis College Durango, Colorado.
Ten Facts I Have Learned About 401(k) Plans Martin J. Gruber.
 Communicating with Consumers About Health Care Value : A Controlled Experiment Judith Hibbard and Jessica Greene, University of Oregon Shoshanna Sofaer.
 Introduction (Scary details)  Part I: Introduction to Stock Market Challenge (Brett) 4:30 to 5:15  Part II: What is Financial Literacy (Bill) 5:15.
David Laibson Robert I. Goldman Professor of Economics Harvard University Behavioral Economics and Behavior Change Second National Summit on Pension Reform.
Full-time Undergaduate
Towards Consumer Empowerment: What has been learned from Consumer Driven Health Plans? Stephen T. Parente, Ph.D. University of Minnesota Funded by the.
Enhancing Parents’ Role in Higher Education Assessment Anne Marie Delaney Director of Institutional Research, Babson College.
A View of Financial Literacy on Campuses Kelly Savoie and David Haygood Sallie Mae.
and a Risk Tolerance Test
 A mutual fund is a business that pools money from many people to invest in various ways.  A mutual fund’s investors, in effect, own a portion of the.
Deferred Costs, Delayed Credentials: High Debt among Community College Transfer Students Student Financial Aid Research Network Conference June 20, 2013.
On the Performance of KiwiSaver Funds Bart Frijns & Alireza Tourani-Rad Auckland University of Technology and Auckland Centre for Financial Research.
Psychology of Change Farrokh Alemi, Ph.D.. Objectives Describe what works in changing behavior Assess potential likelihood of a project succeeding.
The Voluntary System of Accountability (VSA SM ).
Reducing Social Security PRA Risk at the Individual Level — Lifecycle Funds and No-Loss Strategies Pathways to a Secure Retirement Conference, August 2006,
Assessing assessment: the role of student effort in comparative studies Ray Adams Jayne Butler.
8 Identifying Market Segments and Targets
Decision Making With Many Options Tibor Besedes Cary Deck Sudipta Sarangi Mikhael Shor October 2007.
Introduction History of Economic Thought Evolution of Economic Ideas - Economic Research Role of Scientific Researchers.
LINKING PSYCHOMETRIC RISK TOLERANCE WITH CHOICE BEHAVIOUR FUR Conference – July 2008 Peter Brooks, Greg B. Davies and Daniel P. Egan.
Problem-Solving Abilities and Feelings of Control: A Work in Progress Emily M. Kaiser, Department of Communication Studies, College of Arts and Sciences.
Effects of Involvement on Students’ Food Choices Cassandra Treweek, Karen Ostenso, University of Wisconsin-Stout Problem: Obesity is a national issue and.
Chapter-8 Chi-square test. Ⅰ The mathematical properties of chi-square distribution  Types of chi-square tests  Chi-square test  Chi-square distribution.
Reducing Social Security PRA Risk at the Individual Level — Lifecycle Funds & No-Loss Strategies October 2006 David Wise Harvard and NBER Steven Venti.
Behavioral biases and heuristics: a primer
© 2008 Morningstar, Inc. All rights reserved. 3/1/2008 LCN Role of Immediate Annuities in Retirement.
Posttraumatic Stress Disorder and Body Image Distress in Victims of Physical and Sexual Assault Terri L. Weaver 1, Ph.D., Michael G. Griffin 2, Ph.D. and.
Personally Important Posttraumatic Growth as a Predictor of Self-Esteem in Adolescents Leah McDiarmid, Kanako Taku Ph.D., & Aundreah Walenski Presented.
Pastors Report Mixed Economic Signs Survey of 1,000 Protestant Pastors.
Chapter 18 Portfolio Performance Evaluation. Types of management revisited Passive management 1.Capital allocation between cash and the risky portfolio.
October 27, 2015 William R. Emmons Center for Household Financial Stability Federal Reserve Bank of St. Louis These comments.
1 Individual Account Investment Options and Portfolio Choice: Behavioral Lessons from 401(k) Plans.
Chapter 18 Asset Allocation. Copyright ©2014 Pearson Education, Inc. All rights reserved.18-2 Chapter Objectives Explain how diversification among assets.
Women at Work Understanding the Wage Gap and its Impact on Montana’s Workforce Barbara Wagner Chief Economist Economic Update Series July 30, 2015.
Development of an Individual Measure of Loss Aversion John W. Payne (Duke) Suzanne B. Shu (UCLA and NBER) Elizabeth C. Webb (Columbia)* Namika Sagara (Duke)
Section 5. What You Will Learn in this Module Illustrate the relationship between the demand for money and the interest rate with a graph Explain why.
Helpful hints for planning your Wednesday investigation.
Crystal Reinhart, PhD & Beth Welbes, MSPH Center for Prevention Research and Development, University of Illinois at Urbana-Champaign Social Norms Theory.
Method Results and discussion Fig. 1. Percentages of offered sums saved in high- and low-level construal conditions. Fig. 2. The amount of money ascribed.
Primary Uses of Deferred Compensation Advisor name, title(s), Firm RVP Name, Title, the Principal Financial Group  Date NONQUALIFIED DEFERRED COMPENSATION.
Chapter 18 Consumer Behavior and Pricing Strategy
& Results: Parenting & Line Judgments ► Parents’ autonomy scores are significantly.
We thank the Office of Research and Sponsored Programs for supporting this research, and Learning & Technology Services for printing this poster. Viability.
Attitudes of Speech-Language Pathology/Audiology Students Toward Noise in Youth Culture Lillian Law, B.A., Adrienne Rubinstein, Ph.D. CUNY AuD Program,
Risky Business Securities and Investments.
“WHAT DRIVES MEMBER CHOICE IN PREMIUM PENSION?”
The Fundamentals of Investing
Pay Yourself First FDIC Money Smart for Young Adults
Understanding the Financial Planning Process
Correlational Research
Chapter 7: Demographic and Socioeconomic Factors of Investors
Presentation transcript:

0 Conference on “How to Increase the Effectiveness of Financial Education” at Dartmouth College Published in the Journal of Behavioral Finance, 2005, Vol. 6, No. 2 By Julie Agnew and Lisa Szykman The College of William and Mary October 2005

1 Motivation Despite the important role 401(k) assets play in an individual’s retirement, evidence suggests that many defined contribution participants follow the “path of least resistance” in their financial decision making [Choi, Laibson, Madrian and Metrick, 2002] One theory that may partially explain this phenomenon is that individuals are experiencing information overload Experimental techniques offer a unique way to test how different 401(k) plan designs influence information overload and investment decisions

2 Research Goals To explore how three common differences among defined contribution plans… 1) the number of investment choices offered, 2) the similarity of the choices, and 3) the display of the choices … lead to varying degrees of information overload and satisfaction To examine how the number of individuals opting for the default investment option changes based on these three differences

3 Related Literature: Information and Decision Making Research suggests that rather than processing more information when decisions become more complex, consumers tend to reduce the amount of effort they expend [Payne, Bettman and Johnson, 1998; Payne, Bettman and Luce,1996] Consumers tend to use information more extensively if it costs less time and/or money to acquire [Stigler, 1961; Nelson, 1970, 1974] Consumer researchers find an inverted U-shaped relationship between information search and knowledge In other words, consumers with moderate level of knowledge search the most before making a product choice [Bettman and Park, 1980]

4 Related Literature: Food, 401(k)s and Information Overload How does nutritional labeling relate to 401(k) plans? Consumer research finds that as dependable information becomes easier to utilize, consumers use the information more to determine food quality, acquire more nutritional information prior to purchase, and improve their overall decision quality [Roe, Levy and Derby, 1999; Ippolito and Mathios, 1990, 1994; Moorman 1990, 1996; Muller 1985] Across 401(k) and 403(b) plans investment choices are not presented in one consistent and easy to use format

5 Related Literature: Food, 401(k)s and Information Overload (-Cont-) Can there really be too much chocolate? Interesting experimental research by Iyengar and Lepper (2000) demonstrates that too many choices can inhibit decision making Some 401(k) evidence from home and abroad suggests that the number of choices can influence investment behavior [Sethi-Iyengar, Jiang and Huberman 2004; Weaver 2002]

6 Basic Experiment Setup: The Allocation Decision In both experiments, participants were asked to allocate a factitious $1,000 in retirement savings among several mutual funds They were also given the option to put their entire $1,000 in a conservative default option (money market fund) To aid in the decision making, eleven commonly reported financial statistics were provided for each fund

7 Basic Experiment Setup: Measuring Overload and Financial Literacy After making their allocations, participants completed a two part survey Part one of the survey included questions designed to measure the participant’s feelings of information overload and satisfaction Part two of the survey tested the participant’s financial knowledge with a ten question exam and included several demographic questions Based on the mean of the exam score, participants were divided into two groups: high- knowledge and low-knowledge

8 Experiment Participants Participants were solicited through campus mail, and flyers during the summer months of 2003 Participants earned ten dollars for their participation and were entered in a $500 raffle The participants’ ages were well distributed in the sample A majority of participants were female, married and had children Source: Experiment One

9 Experiment Participants-Cont. The sample included a broad representation of occupations, salaries and education levels Source: Experiment One

10 Financial Literacy The mean scores on the exam were fairly low (3.73, 3.84) Based on a simple OLS regression, test scores were lower for females, increased with age, decreased with children, increased with salary, and increased with education The correlation between participants’ test score and personal perception of their own relative knowledge varied based on occupation, salary and education occupation- maintenance (.17) versus professor (.77) salary- $0-$19,999 (.42) versus greater than $60,000 (.55) education- high school (.10) versus graduate degree (.59)

11 Experiment One: Manipulating the Display and Number of Choices Fund choices presented in either a table (low search cost) or booklet (high search cost) format The number of investment choices varied from six funds (low number of choices) to sixty funds (high number of choices) Individuals were divided into high or low knowledge categories based on their test score

12 Experiment One: Summary of Main Findings Tested Financial Knowledge The reported mean overload was lower for the high-knowledge group The reported mean satisfaction was greater for the high-knowledge group High-knowledge individuals chose the default less often than low- knowledge participants (2% versus 20%) Number of Choices The reported mean overload was greater for the group given more choices Type of Information Display The reported mean overload was not significantly related to the information display The reported mean satisfaction was higher for participants given the table Number of Choices and Tested Financial Knowledge High-knowledge participants reported more overload when presented with more choices

13 Experiment Two: Manipulating the Similarity of the Options and the Number of Choices The investment funds offered were either highly similar or very distinct Similar options were found by choosing funds that were listed under the same Morningstar category, had comparable investment strategies and similar performance The number of investment choices varied from six funds (low number of choices) to sixty funds (high number of choices) All investment information presented in the low search cost table format used in Experiment One Participants divided into high and low knowledge categories based on exam performance

14 Experiment Two: Summary of Main Findings Tested Financial Knowledge The reported mean overload was lower for the high-knowledge group The reported mean satisfaction was greater for the high- knowledge group High-knowledge individuals chose the default less than low- knowledge participants (4% versus 25%) Number of Choices The reported mean overload was greater for the group given more choices The reported mean satisfaction was lower for the group given more choices Similarity of Choices The reported mean satisfaction was higher for the group given more distinct choices

15 Conclusions Financial knowledge plays a role in the effectiveness of plan design When designing 401(k) plans and educational programs, sponsors should consider that participants’ perceptions of their own relative knowledge may not be accurate The paper’s findings suggest some interesting areas for future research Area 1: How does an individual’s actual financial knowledge and perception of their own relative knowledge affect their interest and participation in financial education programs? Area 2: Can a financial education program change the propensity for low knowledge participants to choose the default option? Area 3: How does the default option influence investment choices for those who do not invest their entire portfolio in the default option? Area 4: Are there other ways to improve the presentation of investment information?