Quote of note:
At root, then, the researchers found, the choice of whether to save comes down more to psychology than to economics. Their approach is squarely in the growing field of behavioral economics, which is gingerly stepping away from the economists' orthodoxy that humans are eternally rational, relentlessly profit-seeking machines.
How to Build a Nation of Savers
By DANIEL GROSS
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 8.4 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 401(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 they pitched 401(k)'s to employees. When employees were offered the option of signing up for a 401(k) upon hiring, 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. In other words, changing the position of the on-off switch essentially doubled the rate.
At a different company, when employees were simply asked to make a decision about whether to participate - yes or no - within 30 days, the rate of enrollment rose to 70 percent from 30 percent.
"This gives the lie to the mythology that the American household doesn't want to save," Professor Laibson said. "Whatever our propensities to save may be, they can easily be changed by changing the institutions in which we make choices."
