Presentation is loading. Please wait.

Presentation is loading. Please wait.

Fatalism, Locus of Control and Retirement Saving July, 2009 Miles Kimball and Tyler Shumway.

Similar presentations


Presentation on theme: "Fatalism, Locus of Control and Retirement Saving July, 2009 Miles Kimball and Tyler Shumway."— Presentation transcript:

1 Fatalism, Locus of Control and Retirement Saving July, 2009 Miles Kimball and Tyler Shumway

2 Cognitive Economics: The Economics of What is in People’s Minds

3 3 Named by Analogy to “Cognitive Psychology” Cognitive Psychology = the area of psychology that examines internal mental processes such as problem solving, memory and language. Cognitive Psychology was a departure from Behaviorism--the idea that only outward behavior is a legitimate object of study. Milton Friedman famously advocated behaviorism in Economics.

4 4/65 Areas of Economics by Distinctive Data Type Standard Economics (including “Mindless” Psychological Economics a la Gul and Pesendorfer): actual market choices only. Experimental Economics: choices in artificial situations but with real stakes. Neuroeconomics: FMRI, saccades, skin conductance, … Bioeconomics: genes, hormones Cognitive Economics: mental contents (based on tests and self-reports) and hypothetical choices.

5 5/65 Four Themes of Cognitive Economics 1.New Types of Data 2.Heterogeneity 3.Finite and Scarce Cognition 4.Welfare Economics Revisited

6 6/65 3. Finite and Scarce Cognition Finite cognition=the reality that people are not infinitely intelligent. Scarce cognition=some decisions required by our modern environment—at work and in private lives—can require more intelligence for full-scale optimization than an individual has

7 4. Welfare Economics Revisited Behavioral economics and finance have found many kinds of anomalous behavior –Exotic preferences? –Cognitive limitations? Answer matters for welfare and policy Research strategy of Cognitive Economics: see how much one can explain with cognitive limitations before invoking exotic preferences

8 Dimensions of Cognition Sophistication (some say literacy) –Distance from truth Overconfidence –Awareness of distance from truth Folk theories –Direction of departure from truth

9 Total Saving We looked for a wide range of psychological factors that might affect total saving –Survey Practicum course –Focus groups Savings questions on the June, 2008 Survey of Consumers

10 Laurie Pounder (2006): High and Low Savers? Circumstances, Patience and Cognition

11 Average Propensity to Consume Out of Full Modigliani Wealth (Kreps-Porteus Preferences)

12

13

14

15 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? Employer 100% Match Employer 25% Match Factor Loading for Contribution Rate Factor Loading for Top Code Dummy

16 Factor Loading: 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%

17 Factor Loading: 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%

18 Factor Loading: Would you vote for such a program? –Yes: 35.6% –No: 60.2%

19 Factor Loading: If you unexpectedly received one thousand dollars, would you: –Save it: 33.4% –Pay off debt with it: 19.7% –pay bills with it: 30.5% –Have fun with it: 12.1%

20 Factor Loading: Other than employer retirement plans from current or past employers, do you have anything saved for retirement? –Yes: 55.3% –No: 41.2%

21 Factor Loading: Residual of total savings/income regressed on age, age 2

22 Savings Behavior Regressions Dependent Variable: Participate in 401(k) Plan VariableCoefficientp-value Intercept Savings Index Log of Income West Region Midwest Region Northeast Region Years of Education Male Married Black Hispanic Native American Asian Homeowner Age Age observations, adjusted R 2 = 7.14%

23 Savings Behavior Regressions Dependent Variable: Take money from refinance VariableCoefficientp-value Intercept Savings Index Log of Income West Region Midwest Region Northeast Region Years of Education Male Married Black Hispanic Native American Asian Homeowner-- Age Age observations, adjusted R 2 = 4.60%

24 Savings Behavior Regressions Dependent Variable: Pay off credit card balance VariableCoefficientp-value Intercept Savings Index Log of Income West Region Midwest Region Northeast Region Years of Education Male Married Black Hispanic Native American Asian Homeowner Age Age observations, adjusted R 2 = 11.30%

25 Savings Behavior Regressions Dependent Variable: Better off without credit card VariableCoefficientp-value Intercept Savings Index Log of Income West Region Midwest Region Northeast Region Years of Education Male Married Black Hispanic Native American Asian Homeowner Age Age observations, adjusted R 2 = 7.84%

26 A Savings Attitude Regression “Thinking about money stresses me out” Dependent Variable: Savings Index VariableCoefficientStd. Errort-statisticP-value Intercept Attitude Var Log of Income West Region Midwest Region Northeast Region Years of Education Male Married Black Hispanic Native American Asian Homeowner Age Age observations, adjusted R 2 = 9.35%

27 Variable Coding Strongly Agree 5 Agree4 Neither Agree Nor Disagree 3 Disagree2 Strongly Disagree 1 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

28 Self-Control and Self-Management I have problems with self control –Strongly Agree: 0.5% –Agree: 10.2% –Neutral: 6.5% –Disagree: 68.7% –Strongly Disagree: 11.3% CoefficientP-value Full Saving Factor (k) Factor

29 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% CoefficientP-value Full Saving Factor (k) Factor

30 Self-Control and Self-Management Breaking a rule gives me a feeling of freedom –Strongly Agree: 10% –Agree: 8.1% –Neutral: 65.5% –Disagree: 13.5% –Strongly Disagree: 0.3% CoefficientP-value Full Saving Factor (k) Factor

31 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% CoefficientP-value Full Saving Factor (k) Factor

32 Self-Control and Self-Management I am very thrifty –Strongly Agree: 7.8% –Agree: 48.5% –Neutral: 14.0% –Disagree: 24.5% –Strongly Disagree: 1.6% CoefficientP-value Full Saving Factor (k) Factor

33 Self-Control and Self-Management Before I buy something, I ask myself if I am really going to use it. –Strongly Agree: 20.2% –Agree: 62.0% –Neutral: 4.6% –Disagree: 10.2% –Strongly Disagree: 0.3% CoefficientP-value Full Saving Factor (k) Factor

34 Self-Control and Self-Management Before I buy something, I think twice to make sure it is something I really need –Strongly Agree: 16.4% –Agree: 65% –Neutral: 4% –Disagree: 11.9% –Strongly Disagree: 0% CoefficientP-value Full Saving Factor (k) Factor

35 Self-Control and Self-Management Pretending to yourself that you have less money than you really do is a good idea –Strongly Agree: 3% –Agree: 39.4% –Neutral: 11.9% –Disagree: 37.5% –Strongly Disagree: 5.4% CoefficientP-value Full Saving Factor (k) Factor

36 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% CoefficientP-value Full Saving Factor (k) Factor

37 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% CoefficientP-value Full Saving Factor (k) Factor

38 Planning, Thinking and Budgeting I am good at seeing the big picture –Strongly Agree: 11.9% –Agree: 71.7% –Neutral: 6.5% –Disagree: 6.5% –Strongly Disagree: 0.5% CoefficientP-value Full Saving Factor (k) Factor

39 Planning, Thinking and Budgeting Thinking about money stresses me out –Strongly Agree: 3.0% –Agree: 25.9% –Neutral: 7.6% –Disagree: 54.7% –Strongly Disagree: 6.2% CoefficientP-value Full Saving Factor (k) Factor

40 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% CoefficientP-value Full Saving Factor (k) Factor

41 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% CoefficientP-value Full Saving Factor (k) Factor

42 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% CoefficientP-value Full Saving Factor (k) Factor

43 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% CoefficientP-value Full Saving Factor (k) Factor

44 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% CoefficientP-value Full Saving Factor (k) Factor

45 Negative Attitudes Toward Being Careful with Money Money doesn’t buy happiness –Strongly Agree: 33.7% –Agree: 49.6% –Neutral: 5.7% –Disagree: 6.5% –Strongly Disagree: 1.4% CoefficientP-value Full Saving Factor (k) Factor

46 Negative Attitudes Toward Being Careful with Money Thinking about money all the time, even when you have enough, is a terrible way to live –Strongly Agree: 33.7% –Agree: 49.6% –Neutral: 5.7% –Disagree: 6.5% –Strongly Disagree: 1.4% CoefficientP-value Full Saving Factor (k) Factor

47 Negative Attitudes Toward Being Careful with Money It is nice to have money saved up, but you have to live –Strongly Agree: 9.7% –Agree: 73.1% –Neutral: 7.0% –Disagree: 7.3% –Strongly Disagree: 0.3% CoefficientP-value Full Saving Factor (k) Factor

48 Negative Attitudes Toward Being Careful with Money I would hate to have someone think that I am stingy with my money –Strongly Agree: 3.8% –Agree: 40.2% –Neutral: 14% –Disagree: 35.9% –Strongly Disagree: 3.5% CoefficientP-value Full Saving Factor (k) Factor

49 Positive Attitudes Toward Saving Most Americans save too little –Strongly Agree: 20.0% –Agree: 68.2% –Neutral: 4.9% –Disagree: 3.8% –Strongly Disagree: 0.5% CoefficientP-value Full Saving Factor (k) Factor

50 Positive Attitudes Toward Saving Most Americans borrow too much –Strongly Agree: 25.9% –Agree: 64.4% –Neutral: 3.8% –Disagree: 2.7% –Strongly Disagree: 0.3% CoefficientP-value Full Saving Factor (k) Factor

51 Positive Attitudes Toward Saving I really respect people who have managed to save a lot of money –Strongly Agree: 21.0% –Agree: 64.7% –Neutral: 7.3% –Disagree: 3.8% –Strongly Disagree: 0.3% CoefficientP-value Full Saving Factor (k) Factor

52 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% CoefficientP-value Full Saving Factor (k) Factor

53 Social Pressure When I was growing up, my parents were good at saving their money –Strongly Agree: 12.9% –Agree: 46.4% –Neutral: 5.9% –Disagree: 25.9% –Strongly Disagree: 5.7% CoefficientP-value Full Saving Factor (k) Factor

54 Social Pressure I would hate to have people think I am careless with money –Strongly Agree: 13.5% –Agree: 54.5% –Neutral: 14.6% –Disagree: 11.3% –Strongly Disagree: 3.2% CoefficientP-value Full Saving Factor (k) Factor

55 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% CoefficientP-value Full Saving Factor (k) Factor

56 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% CoefficientP-value Full Saving Factor (k) Factor

57 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% CoefficientP-value Full Saving Factor (k) Factor

58 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% CoefficientP-value Full Saving Factor (k) Factor

59 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% CoefficientP-value Full Saving Factor (k) Factor

60 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% CoefficientP-value Full Saving Factor (k) Factor

61 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% CoefficientP-value Full Saving Factor (k) Factor


Download ppt "Fatalism, Locus of Control and Retirement Saving July, 2009 Miles Kimball and Tyler Shumway."

Similar presentations


Ads by Google