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Racial Disparities in Savings Behavior for a Continuously Employed Cohort

Author

Listed:
  • 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
    Note: AG PE
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    References listed on IDEAS

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    Cited by:

    1. Harris, Timothy & Yelowitz, Aaron, 2015. "Racial Disparities in Life Insurance Coverage," MPRA Paper 64005, University Library of Munich, Germany.

    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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