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Fatalism, Locus of Control and Retirement Saving

Fatalism, Locus of Control and Retirement Saving. April, 2010 Miles Kimball and Tyler Shumway. Unexplained Variance in Propensity to Save. Pounder (2006): High and Low Savers? Circumstances, Patience and Cognition

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Fatalism, Locus of Control and Retirement Saving

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  1. Fatalism, Locus of Control and Retirement Saving April, 2010 Miles Kimball and Tyler Shumway

  2. Unexplained Variance in Propensity to Save • Pounder (2006): High and Low Savers? Circumstances, Patience and Cognition • Constructs a ratio of consumption to the present-discounted value of lifetime resources from HRS data • In the unconstrained life-cycle theory, this ratio should depend only on life expectancy, rate of return expectations and preferences • Even after including bequests, health, old HRS cognitive measures, demographics, 73% of variance unexplained

  3. How Do High Savers and Low Savers Differ in their Traits and Attitudes? We wanted to look at a wide range of psychological, sociological and expectational factors and that might affect saving for retirement • Survey Practicum course • Focus groups • June, 2008 Survey of Consumers • Confirmations and Surprises

  4. Next Steps • Repeat the key parts of our survey on the May 2010 Survey of Consumers • Pre/Post-Crash comparison • Larger sample when pooling (with crash dummy) • Team up with Laurie Pounder to find the correlation of fatalism and locus of control measures and new module financial sophistication with the consumption to full wealth ratio on the HRS. • Follow up promising leads with a new round of questions on the ALP.

  5. Suppose you got a (new) job that has a 401(k) retirement savings plan. You can contribute up to ten percent of your pay. For every dollar you put in, your new employer will put in a dollar (twenty-five cents). What percentage of your pay would you choose to contribute?

  6. Factor Loading: 0.411 • Compared to people who are similar to you in age, income, and family size, do you think you have: • More retirement savings: 26.4% • About the same amount of ret. savings: 34.8% • Less retirement savings: 35.3%

  7. Factor Loading: 0.285 • Residual of total savings/income regressed on age, age2

  8. Savings Behavior RegressionsDependent Variable: Participate in 401(k) Plan 143 observations, adjusted R2 = 7.14%

  9. Savings Behavior RegressionsDependent Variable: Pay off credit card balance 275 observations, adjusted R2 = 11.30%

  10. A Savings Attitude Regression“Thinking about saving money stresses me out” Dependent Variable: Savings Index 344 observations, adjusted R2 = 9.35%

  11. Variable Coding • The reported percentages generally do not sum to 100 percent because some respondents do not answer each question • Most of the regressions have about 320 observations

  12. Self-Control and Self-Management • I often make impulse purchases • Strongly Agree: 2.7% • Agree: 25.1% • Neutral: 7.3% • Disagree: 50.7% • Strongly Disagree: 11.1%

  13. Self-Control and Self-Management • I can stick with a task until it is done, even if it is unpleasant • Strongly Agree: 16.4% • Agree: 70.6% • Neutral: 4.0% • Disagree: 5.1% • Strongly Disagree: 0.8%

  14. Planning, Thinking and Budgeting • How much have you thought about retirement? • A lot: 37.7% • Some: 27.2% • A little: 15.1% • Hardly at all: 13.5%

  15. Planning, Thinking and Budgeting • I enjoy planning activities like vacations well in advance • Strongly Agree: 30.2% • Agree: 45.3% • Neutral: 8.6% • Disagree: 10.2% • Strongly Disagree: 2.7%

  16. Planning, Thinking and Budgeting • Thinking about saving money stresses me out • Strongly Agree: 3.0% • Agree: 25.9% • Neutral: 7.6% • Disagree: 54.7% • Strongly Disagree: 6.2%

  17. Planning, Thinking and Budgeting • I often wonder, “Where did all my money go?” • Strongly Agree: 5.4% • Agree: 35% • Neutral: 7% • Disagree: 42.9% • Strongly Disagree: 7%

  18. Institutional Trust and Reliance on Others • If I try to save through financial institutions, someone is likely to figure out a way to cheat me out of the money • Strongly Agree: 4.3% • Agree: 9.4% • Neutral: 14.3% • Disagree: 48.3% • Strongly Disagree: 20.2%

  19. Institutional Trust and Reliance on Others • Whether for political or other reasons, the US government will always make sure that senior citizens have basic food, shelter, clothing and medical care • S. Agree: 4.3%, Agree: 9.4% • Neutral: 14.3% • Disagree: 48.3%, St. Disagree: 20.2%

  20. Institutional Trust and Reliance on Others • Even in the worst case, I will be okay financially when I am old because I will have government programs to fall back on • Strongly Agree: 1.9% • Agree: 11.9% • Neutral: 11.1% • Disagree: 55.5% • Strongly Disagree: 16.7%

  21. Institutional Trust and Reliance on Others • My children will make sure I am okay financially when I am old • Strongly Agree: 1.9% • Agree: 11.9% • Neutral: 11.1% • Disagree: 55.5% • Strongly Disagree: 16.7%

  22. Social Pressure • My parents or guardians encouraged me to save • Strongly Agree: 21.3% • Agree: 53.9% • Neutral: 5.4% • Disagree: 13.5% • Strongly Disagree: 2.7%

  23. Social Pressure • I would feel guilty about going bankrupt, even if I had to • Strongly Agree: 30.2% • Agree: 47.4% • Neutral: 5.7% • Disagree: 12.1% • Strongly Disagree: 1.9%

  24. Strong Judgments • People who don’t save for retirement are being irresponsible • Strongly Agree: 24.5% • Agree: 51.2% • Neutral: 5.4% • Disagree: 15.4% • Strongly Disagree: 0.8%

  25. Strong Judgments • Using a credit card without paying off the balance every month is really stupid • Strongly Agree: 21.3% • Agree: 47.2% • Neutral: 8.1% • Disagree: 19.4% • Strongly Disagree: 1.1%

  26. Fatalism • If you don’t let yourself get too worried, everything tends to work out in the end • Strongly Agree: 6.7% • Agree: 45.0% • Neutral: 10.5% • Disagree: 32.6% • Strongly Disagree: 2.4%

  27. Fatalism • No one can predict the future, so trying to save doesn’t do much good • Strongly Agree: 0.8% • Agree: 4.9% • Neutral: 2.2% • Disagree: 61.7% • Strongly Disagree: 27.8%

  28. Locus of Control • It is difficult to stay ahead financially because of the things my family members want to buy • Strongly Agree: 1.1% • Agree: 23.7% • Neutral: 10.8% • Disagree: 52.8% • Strongly Disagree: 8.1%

  29. Locus of Control • Many of the things that keep me from saving more money are out of my control • Strongly Agree: 6.7% • Agree: 42.6% • Neutral: 5.1% • Disagree: 38.5% • Strongly Disagree: 4.3%

  30. Responses to Hypotheticals

  31. Factor Loading: 0.475 • Suppose that the government decided that in addition to current Social Security taxes, everyone under sixty-five who is working would be required to put an additional ten percent of their pre-tax income into a personal retirement account. How hard would it be for you to adjust to your (and your spouse/partner’s) lower take-home pay – would you say it would be: • Extremely Hard: 12.9% • Quite Hard: 11.9% • Somewhat Hard: 34.0% • Not so hard: 20.2% • Not hard at all: 16.4%

  32. Factor Loading: 0.237 • Would you vote for such a program? • Yes: 35.6% • No: 60.2%

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