The Psychology of Saving
Economists interested in behavioral economics have devoted much energy to studying why people don’t save more.
A Quick Way to Build a Nation of Savers
Americans seem to hate saving. In October, the nation’s households saved just 0.2 percent of their income. And despite the tax advantages conferred by 401(k),s, individual retirement accounts and other savings vehicles, most people simply refuse to stash much money in them. As of 2001, the most recent data available, only 11.4 percent of 401(k) investors made the maximum contributions, according to Alicia H. Munnell, director of the Center for Retirement Research at Boston College Cultural critics have bruited a host of theories to explain our aversion to thrift: Americans are hoggish consumers. Like children, we live for today and don’t worry about the future. Our popular culture and our
economy encourage consumption But economists have been more perplexed. After all, the tax advantages and employee match of 40 I(k)’s– free money!-should appeal to any rational person. Well, it could be that Americans’ failure to save is caused by mechanics, not morals. At least that is one conclusion of a recent paper by four economists David Laibson and James J. Choi of Harvard and Brigitte C. Madrian and Andrew Metrick of the University of Pennsylvania The scholars examined what” happened at four companies that switched the way the employees. When employees were offered the option of signing up for a 401(k) upon participation rates after six months ranged from 25 percent to 43 percent. Not bad. But when the same companies instituted default enrollment-people were automatically enrolled in the plan when hired but could opt out-participation rates after six months were 86 to 90 percent. Tn other words, changing he position of the on-off switch essentially doubled the rate ..
[av_button label='Get Any Economics Assignment Solved for US$ 55' link='manually,http://economicskey.com/buy-now' link_target='' color='red' custom_bg='#444444' custom_font='#ffffff' size='large' position='center' icon_select='yes' icon='ue859' font='entypo-fontello']