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Are retirement planning tools substitutes or complements to financial capability?

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  • Goda, Gopi Shah
  • Levy, Matthew R.
  • Flaherty Manchester, Colleen
  • Sojourner, Aaron
  • Tasoff, Joshua
  • Xiao, Jiusi

Abstract

We conduct a randomized controlled trial to understand how a web-based retirement saving calculator affects workers' retirement-savings decisions. In both the treatment and active control conditions, the calculator projects workers' retirement income goal. In the treatment condition only, it also projects retirement income based on defined-contribution savings, prominently displays the gap between projected goal and actual retirement income, and allows users to interactively explore how alternative, future contribution choices would affect the gap. The treatment increased average annual retirement contributions by $174 (2.3 percent). However, effects were larger for those with higher measures of financial knowledge, suggesting this type of tool complements, rather than substitutes for, underlying financial capability.

Suggested Citation

  • Goda, Gopi Shah & Levy, Matthew R. & Flaherty Manchester, Colleen & Sojourner, Aaron & Tasoff, Joshua & Xiao, Jiusi, 2023. "Are retirement planning tools substitutes or complements to financial capability?," LSE Research Online Documents on Economics 120272, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:120272
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    References listed on IDEAS

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    More about this item

    Keywords

    exponential-growth bias; financial capability; financial literacy; present bias; retirement planning; retirement saving;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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