Advanced Search
MyIDEAS: Login to save this paper or follow this series

Savings Adequacy Uncertainty: Driver or Obstacle to Increased Pension Contributions?

Contents:

Author Info

  • Ron J.G. van Schie

    (Erasmus University Rotterdam)

  • Bas Donkers

    (Erasmus University Rotterdam)

  • Benedict G.C. Dellaert

    (Erasmus University Rotterdam)

Abstract

Deciding how much to save for retirement is a difficult task that includes many uncertainties. In this paper, we use data from a representative Dutch household panel to study the impact of uncertainty regarding one's savings adequacy on retirement savings contributions and information search processes. We combine ideas from the literature in psychology and economics that provide opposing predictions regarding the impact of uncertainty on retirement savings contributions. Our results indicate that the effect of uncertainty is moderated by two factors: an individual's perceived adequacy of current savings and that individual's financial constraints. In particular, we find that uncertainty increases retirement contributions for those who believe that they save adequately; however, it hinders retirement contributions for those who believe that they save inadequately. This effect of uncertainty is further moderated by the availability of financial means: a reduction in uncertainty results in greater contributions to savings only when financial constraints are absent. We also find that uncertainty has both indirect and direct effects on savings information search. In particular, uncertainty indirectly affects savings information search because it impacts individuals' intentions to save, which consequently forces individuals to engage in purchase-oriented information search; however, uncertainty also has a direct effect because individuals engage in ongoing information search processes to directly reduce uncertainty. The implications of these findings are discussed.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://papers.tinbergen.nl/12037.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 12-037/1.

as in new window
Length:
Date of creation: 11 Apr 2012
Date of revision:
Handle: RePEc:dgr:uvatin:20120037

Contact details of provider:
Web page: http://www.tinbergen.nl

Related research

Keywords: uncertainty; savings adequacy; retirement; financial decision making;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, May.
  2. B. Douglas Bernheim & John Karl Scholz, 1992. "Private Saving and Public Policy," NBER Working Papers 4215, National Bureau of Economic Research, Inc.
  3. Janiszewski, Chris, 1998. " The Influence of Display Characteristics on Visual Exploratory Search Behavior," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 25(3), pages 290-301, December.
  4. Davies, James B, 1981. "Uncertain Lifetime, Consumption, and Dissaving in Retirement," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(3), pages 561-77, June.
  5. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Choices, and the Path of Least Resistance," NBER Chapters, National Bureau of Economic Research, Inc, in: Tax Policy and the Economy, Volume 16, pages 67-114 National Bureau of Economic Research, Inc.
  6. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2002. "Defined Contribution Pensions: Plan Rules, Participant Decisions, and the Path of Least Resistance," JCPR Working Papers, Northwestern University/University of Chicago Joint Center for Poverty Research 257, Northwestern University/University of Chicago Joint Center for Poverty Research.
  7. Glenn R. Hubbard & Jonathan Skinner & Stephen P. Zeldes, . "Precautionary Saving and Social Insurance," Rodney L. White Center for Financial Research Working Papers, Wharton School Rodney L. White Center for Financial Research 3-95, Wharton School Rodney L. White Center for Financial Research.
  8. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2004. "Are Americans Saving "Optimally" for Retirement?," NBER Working Papers 10260, National Bureau of Economic Research, Inc.
  9. Punj, Girish N & Staelin, Richard, 1983. " A Model of Consumer Information Search Behavior for New Automobiles," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 9(4), pages 366-80, March.
  10. Urbany, Joel E & Dickson, Peter R & Wilkie, William L, 1989. " Buyer Uncertainty and Information Search," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 16(2), pages 208-15, September.
  11. Luce, Mary Frances, 1998. " Choosing to Avoid: Coping with Negatively Emotion-Laden Consumer Decisions," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 24(4), pages 409-33, March.
  12. Ajzen, Icek, 1991. "The theory of planned behavior," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 50(2), pages 179-211, December.
  13. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, Elsevier, vol. 32(4), pages 593-608, August.
  14. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers, University of Michigan, Michigan Retirement Research Center wp114, University of Michigan, Michigan Retirement Research Center.
  15. Bloch, Peter H & Sherrell, Daniel L & Ridgway, Nancy M, 1986. " Consumer Search: An Extended Framework," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 13(1), pages 119-26, June.
  16. Christopher D. Carroll & Andrew A. Samwick, 1995. "How Important is Precautionary Saving?," NBER Working Papers 5194, National Bureau of Economic Research, Inc.
  17. Lusardi, Annamaria, 1997. "Precautionary saving and subjective earnings variance," Economics Letters, Elsevier, Elsevier, vol. 57(3), pages 319-326, December.
  18. Lipshitz, Raanan & Strauss, Orna, 1997. "Coping with Uncertainty: A Naturalistic Decision-Making Analysis," Organizational Behavior and Human Decision Processes, Elsevier, Elsevier, vol. 69(2), pages 149-163, February.
  19. Douglas A. Hershey & K�ne Henkens & Hendrik P. van Dalen, 2006. "Mapping the Minds of Retirement Planners," Tinbergen Institute Discussion Papers, Tinbergen Institute 06-038/1, Tinbergen Institute.
  20. Dhar, Ravi, 1997. " Consumer Preference for a No-Choice Option," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 24(2), pages 215-31, September.
  21. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan, vol. 42(1), pages 35-44, January.
  22. Donkers, Bas & van Soest, Arthur, 1999. "Subjective measures of household preferences and financial decisions," Journal of Economic Psychology, Elsevier, Elsevier, vol. 20(6), pages 613-642, December.
  23. John Karl Scholz & Ananth Seshadri, 2008. "Are All Americans Saving ‘Optimally’ for Retirement?," Working Papers, University of Michigan, Michigan Retirement Research Center wp189, University of Michigan, Michigan Retirement Research Center.
  24. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," NBER Working Papers 12981, National Bureau of Economic Research, Inc.
  25. Croy, Gerry & Gerrans, Paul & Speelman, Craig, 2010. "The role and relevance of domain knowledge, perceptions of planning importance, and risk tolerance in predicting savings intentions," Journal of Economic Psychology, Elsevier, Elsevier, vol. 31(6), pages 860-871, December.
  26. Palumbo, Michael G, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 66(2), pages 395-421, April.
  27. Beatty, Sharon E & Smith, Scott M, 1987. " External Search Effort: An Investigation across Several Product Categories," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 14(1), pages 83-95, June.
  28. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 116(4), pages 1149-1187, November.
  29. Moorthy, Sridhar & Ratchford, Brian T & Talukdar, Debabrata, 1997. " Consumer Information Search Revisited: Theory and Empirical Analysis," Journal of Consumer Research, University of Chicago Press, University of Chicago Press, vol. 23(4), pages 263-77, March.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:dgr:uvatin:20120037. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Antoine Maartens (+31 626 - 160 892)).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.