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401(k)s and household saving: new evidence from the Survey of Consumer Finances

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  • Karen M. Pence

Abstract

Although households have invested billions in 401(k) accounts, these balances may not be new saving if workers invest money that they would have saved in the program's absence. In this paper, I assess the effect of the 401(k) program on saving by comparing changes in the wealth of 401(k) eligible and ineligible households over the 1989-1998 period using data from the Survey of Consumer Finances (SCF). This comparison may yield misleading estimates of the effect of 401(k)s on saving if eligible households have a higher taste for saving than ineligible households or if they begin the 1989-1998 period with greater amounts of wealth. I adjust for these potential biases by constructing subjective measures of saving taste from questions on the SCF and by transforming the wealth measure with the inverse hyperbolic sine. Incorporating these adjustments suggests that 401(k)s have little to no effect on saving.

Suggested Citation

  • Karen M. Pence, 2002. "401(k)s and household saving: new evidence from the Survey of Consumer Finances," Finance and Economics Discussion Series 2002-6, Board of Governors of the Federal Reserve System (U.S.).
  • Handle: RePEc:fip:fedgfe:2002-6
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    References listed on IDEAS

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    1. Leslie E. Papke & Mitchell A. Petersen & James M. Poterba, 1996. "Do 401(k) Plans Replace Other Employer-Provided Pensions?," NBER Chapters,in: Advances in the Economics of Aging, pages 219-240 National Bureau of Economic Research, Inc.
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    Cited by:

    1. Amromin, Gene & Huang, Jennifer & Sialm, Clemens, 2007. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Journal of Public Economics, Elsevier, vol. 91(10), pages 2014-2040, November.
    2. Gene Amromin, 2008. "Precautionary Savings Motives and Tax Efficiency of Household Portfolios: An Empirical Analysis," NBER Chapters,in: Tax Policy and the Economy, Volume 22, pages 5-41 National Bureau of Economic Research, Inc.
    3. Kai Yuan Kuan & Mark R. Cullen & Sepideh Modrek, 2015. "Racial Disparities in Savings Behavior for a Continuously Employed Cohort," NBER Working Papers 20937, National Bureau of Economic Research, Inc.
    4. Geng Li & Paul A. Smith, 2008. "Borrowing from yourself: 401(k) loans and household balance sheets," Finance and Economics Discussion Series 2008-42, Board of Governors of the Federal Reserve System (U.S.).
    5. Fisher, Patti J. & Montalto, Catherine P., 2010. "Effect of saving motives and horizon on saving behaviors," Journal of Economic Psychology, Elsevier, vol. 31(1), pages 92-105, February.

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    Keywords

    Pensions ; Retirement ; Saving and investment;

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