1. Fatalism, Locus of Control and Retirement Saving April, 2010 Miles Kimball and Tyler Shumway

2. Unexplained Variance in Propensity 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

3. How Do High Savers and Low Savers Differ in their Traits and 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

4. Next 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.

5. 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 Employer 25% Match Factor Loading for Contribution Rate 0.8490.841 Factor Loading for Top Code Dummy 0.8350.809

6. 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%

7. Factor Loading: 0.285 Residual of total savings/income regressed on age, age 2

8. Savings Behavior Regressions Dependent Variable: Participate in 401(k) Plan VariableCoefficientp-value Intercept0.5240.4271 Savings Index0.1010.0005 Log of Income-0.0070.8993 West Region0.0150.8340 Midwest Region0.0220.7317 Northeast Region-0.0040.9496 Years of Education 0.0120.3242 Male-0.0010.9818 Married-0.0740.2460 Black0.0930.3435 Hispanic-0.0980.3663 Native American0.4350.1508 Asian0.0190.8996 Homeowner0.0990.2602 Age0.0140.4151 Age 2 0.0000.3104 143 observations, adjusted R 2 = 7.14%

9. Savings Behavior Regressions Dependent Variable: Pay off credit card balance VariableCoefficientp-value Intercept3.3200.1124 Savings Index0.5030.0001 Log of Income0.1210.4944 West Region-0.4230.1361 Midwest Region-0.2580.3292 Northeast Region-0.4150.1495 Years of Education 0.0490.3089 Male0.0470.8178 Married0.0100.9650 Black-0.5910.1386 Hispanic-0.4220.3937 Native American-1.7480.1438 Asian0.6160.3039 Homeowner0.0320.9303 Age-0.0590.1629 Age 2 0.0010.0818 275 observations, adjusted R 2 = 11.30%

10. A Savings Attitude Regression “Thinking about saving money stresses me out” Dependent Variable: Savings Index VariableCoefficientStd. Errort-statisticP-value Intercept-1.9321.822-1.060.2881 Attitude Var 11-0.1650.0793.150.0018 Log of Income1.1160.3992.800.0055 West Region0.6680.7200.930.3545 Midwest Region-0.4970.643-0.770.4400 Northeast Region-0.5820.715-0.810.4164 Years of Education -0.0310.119-0.260.7974 Male0.3750.5070.740.4604 Married0.1510.6000.250.8013 Black-0.9670.920-1.050.2942 Hispanic0.2381.2580.190.8501 Native American0.0532.3390.020.9819 Asian-0.5921.657-0.360.7213 Homeowner0.8050.7601.060.2905 Age0.1720.1101.550.1212 Age 2 -0.0010.001-1.110.2666 344 observations, adjusted R 2 = 9.35%

11. Variable Coding Strongly Agree 5 Agree4 Neither Agree Nor Disagree 3 Disagree2 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

12. Self-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% CoefficientP-value Full Saving Factor-0.0970.0534 401(k) Factor-0.0610.2243

13. Self-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% CoefficientP-value Full Saving Factor0.1000.1801 401(k) Factor0.0910.2328

14. Planning, 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% CoefficientP-value Full Saving Factor0.1210.0193 401(k) Factor0.0900.0803

15. Planning, 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% CoefficientP-value Full Saving Factor0.0840.1090 401(k) Factor0.0100.8442

16. Planning, 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% CoefficientP-value Full Saving Factor-0.2500.0001 401(k) Factor-0.1650.0018

17. Planning, 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% CoefficientP-value Full Saving Factor-0.1000.0383 401(k) Factor-0.0540.2662

18. Institutional Trust and Reliance 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% CoefficientP-value Full Saving Factor-0.1170.0347 401(k) Factor-0.1240.0247

19. Institutional Trust and Reliance 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% CoefficientP-value Full Saving Factor0.0900.0491 401(k) Factor0.0590.2036

20. Institutional Trust and Reliance 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% CoefficientP-value Full Saving Factor0.0670.2522 401(k) Factor0.0350.5570

21. Institutional Trust and Reliance 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% CoefficientP-value Full Saving Factor-0.0480.3891 401(k) Factor-0.0530.3587

22. Social 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% CoefficientP-value Full Saving Factor-0.0400.4479 401(k) Factor-0.0490.3566

23. Social 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% CoefficientP-value Full Saving Factor0.0330.5459 401(k) Factor0.0470.3854

24. Strong 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% CoefficientP-value Full Saving Factor0.1980.0004 401(k) Factor0.1460.0089

25. Strong 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% CoefficientP-value Full Saving Factor0.1030.0423 401(k) Factor0.0820.1090

26. Fatalism 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% CoefficientP-value Full Saving Factor-0.0840.0889 401(k) Factor-0.0450.3733

27. Fatalism 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% CoefficientP-value Full Saving Factor-0.3650.0001 401(k) Factor-0.2930.0001

28. Locus 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% CoefficientP-value Full Saving Factor-0.1760.0010 401(k) Factor-0.1290.0179

29. Locus 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% CoefficientP-value Full Saving Factor-0.1750.0002 401(k) Factor-0.1260.0088

30. Responses to Hypotheticals

31. 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%

32. Factor Loading: 0.237 Would you vote for such a program? –Yes: 35.6% –No: 60.2%