Fatalism, Locus of Control and Retirement Saving

Fatalism, Locus of Control Fatalism, Locus of Control and Retirement Savingand Retirement Saving

April, 2010April, 2010

Miles Kimball and Tyler ShumwayMiles Kimball and Tyler Shumway

Unexplained Variance in Unexplained Variance in Propensity to SavePropensity 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

How Do High Savers and Low How Do High Savers and Low Savers Differ in their Traits and Savers Differ in their Traits and

Attitudes?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

Next StepsNext 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.

• 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

Employer25% Match

Factor Loading for Contribution

Rate0.849 0.841

Factor Loading for Top Code

Dummy0.835 0.809

• 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%


• Residual of total savings/income regressed on age, age2

Savings Behavior RegressionsSavings Behavior RegressionsDependent Variable: Participate in 401(k) PlanDependent Variable: Participate in 401(k) Plan

Variable Coefficient p-value

Intercept 0.524 0.4271

Savings Index 0.101 0.0005

Log of Income -0.007 0.8993

West Region 0.015 0.8340

Midwest Region 0.022 0.7317

Northeast Region -0.004 0.9496

Years of Education

0.012 0.3242

Male -0.001 0.9818

Married -0.074 0.2460

Black 0.093 0.3435

Hispanic -0.098 0.3663

Native American 0.435 0.1508

Asian 0.019 0.8996

Homeowner 0.099 0.2602

Age 0.014 0.4151

Age2 0.000 0.3104

143 observations, adjusted R2 = 7.14%

Savings Behavior RegressionsSavings Behavior RegressionsDependent Variable: Pay off credit card balanceDependent Variable: Pay off credit card balance

Variable Coefficient p-value

Intercept 3.320 0.1124

Savings Index 0.503 0.0001

Log of Income 0.121 0.4944

West Region -0.423 0.1361

Midwest Region -0.258 0.3292

Northeast Region -0.415 0.1495

Years of Education

0.049 0.3089

Male 0.047 0.8178

Married 0.010 0.9650

Black -0.591 0.1386

Hispanic -0.422 0.3937

Native American -1.748 0.1438

Asian 0.616 0.3039

Homeowner 0.032 0.9303

Age -0.059 0.1629

Age2 0.001 0.0818


A Savings Attitude RegressionA Savings Attitude Regression“Thinking about saving money stresses me out”“Thinking about saving money stresses me out”

Dependent Variable: Savings IndexVariable Coefficient Std. Error t-statistic P-value

Intercept -1.932 1.822 -1.06 0.2881

Attitude Var 11 -0.165 0.079 3.15 0.0018

Log of Income 1.116 0.399 2.80 0.0055

West Region 0.668 0.720 0.93 0.3545

Midwest Region -0.497 0.643 -0.77 0.4400

Northeast Region -0.582 0.715 -0.81 0.4164

Years of Education

-0.031 0.119 -0.26 0.7974

Male 0.375 0.507 0.74 0.4604

Married 0.151 0.600 0.25 0.8013

Black -0.967 0.920 -1.05 0.2942

Hispanic 0.238 1.258 0.19 0.8501

Native American 0.053 2.339 0.02 0.9819

Asian -0.592 1.657 -0.36 0.7213

Homeowner 0.805 0.760 1.06 0.2905

Age 0.172 0.110 1.55 0.1212

Age2 -0.001 0.001 -1.11 0.2666


Variable CodingVariable Coding

Strongly Agree 5

Agree 4

Neither Agree Nor Disagree

3

Disagree 2

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

Self-Control and Self-ManagementSelf-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%

Coefficient P-value

Full Saving Factor -0.097 0.0534

401(k) Factor -0.061 0.2243

Self-Control and Self-ManagementSelf-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%

Coefficient P-value

Full Saving Factor 0.100 0.1801

401(k) Factor 0.091 0.2328

Planning, Thinking and BudgetingPlanning, 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%

Coefficient P-value


401(k) Factor 0.090 0.0803


• 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%

Coefficient P-value


401(k) Factor 0.010 0.8442


• Thinking about saving money stresses me out– Strongly Agree: 3.0%– Agree: 25.9%– Neutral: 7.6%– Disagree: 54.7%– Strongly Disagree: 6.2%

Coefficient P-value


401(k) Factor -0.165 0.0018


• I often wonder, “Where did all my money go?”– Strongly Agree: 5.4%– Agree: 35%– Neutral: 7%– Disagree: 42.9%– Strongly Disagree: 7%

Coefficient P-value


401(k) Factor -0.054 0.2662

Institutional Trust and Institutional Trust and Reliance on OthersReliance 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%

Coefficient P-value


401(k) Factor -0.124 0.0247


• 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%

Coefficient P-value


401(k) Factor 0.059 0.2036


• 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%


Coefficient P-value


401(k) Factor 0.035 0.5570


• 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%

Coefficient P-value


401(k) Factor -0.053 0.3587

Social PressureSocial Pressure• My parents or guardians encouraged me to

save– Strongly Agree: 21.3%

– Agree: 53.9%

– Neutral: 5.4%

– Disagree: 13.5%


Coefficient P-value


401(k) Factor -0.049 0.3566

Social PressureSocial 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%


Coefficient P-value


401(k) Factor 0.047 0.3854

Strong JudgmentsStrong Judgments• People who don’t save for retirement are

being irresponsible– Strongly Agree: 24.5%

– Agree: 51.2%

– Neutral: 5.4%

– Disagree: 15.4%


Coefficient P-value


401(k) Factor 0.146 0.0089

Strong JudgmentsStrong 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%


Coefficient P-value


401(k) Factor 0.082 0.1090

FatalismFatalism• 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%


Coefficient P-value


401(k) Factor -0.045 0.3733

FatalismFatalism• 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%


Coefficient P-value


401(k) Factor -0.293 0.0001

Locus of ControlLocus 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%


Coefficient P-value


401(k) Factor -0.129 0.0179

Locus of ControlLocus 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%


Coefficient P-value


401(k) Factor -0.126 0.0088

Responses to HypotheticalsResponses to HypotheticalsMatch 1 Dollar 25 Cent

Percent Match Match0 3 141 1 52 6 103 10 224 1 85 39 526 7 127 9 88 6 89 0 110 275 221Total 357 361

• 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%


• Would you vote for such a program?– Yes: 35.6%– No: 60.2%

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Fatalism, Locus of Control and Retirement Saving

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