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Racial Disparities in Savings Behavior for a Continuously Employed Cohort

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  • Kai Yuan Kuan
  • Mark R. Cullen
  • Sepideh Modrek

Abstract

The wealth gap has reached record highs. At the same time there has been substantial proliferation of 401(k) savings accounts as the dominant retirement savings vehicle, and these accounts make up an increasing proportion of overall wealth. In this paper we examine 401(k) saving behavior of continuously employed workers over an eight-year period at a single, geographically diverse employer. We demonstrate substantial difference in 401(k) savings behavior by employee ethnicity even within a single employer 401(k) plan architecture. We show both African American and Hispanic employees are less likely to participate in the 401(k) plans. Moreover, conditional on participation African Americans contribute a lower proportion of their income to their 401(k) plan on average. We also show that African Americans and Hispanics tend to draw down on their 401(k) balances more often. Finally, we document that both African Americans and Hispanics favor safer assets within their plan options. Together these differences substantially impact the level of 401(k) balances accumulated and therefore overall wealth accumulation.

Suggested Citation

  • 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.
  • Handle: RePEc:nbr:nberwo:20937
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    Cited by:

    1. Timothy F. Harris & Aaron Yelowitz, 2018. "Racial disparities in life insurance coverage," Applied Economics, Taylor & Francis Journals, vol. 50(1), pages 94-107, January.
    2. Korniotis, George & Bonaparte, Yosef & Khalaf, Sarah, 2022. "The Obama Effect: Heightened Risk Tolerance, Optimism, and Wealth Accumulation by Minorities after 2008," CEPR Discussion Papers 14264, C.E.P.R. Discussion Papers.
    3. Nadia Karamcheva & Victoria Perez-Zetune, 2023. "Defined Benefit and Defined Contribution Plans and the Distribution of Family Wealth: Working Paper 2023-02," Working Papers 58305, Congressional Budget Office.
    4. Bonaparte, Yosef & Khalaf, Sarah & Korniotis, George M., 2023. "Financial decisions of minorities post-2008," Journal of Banking & Finance, Elsevier, vol. 149(C).

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions

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