Save More Tomorrow
Save More Tomorrow : Using Behavioral Economics to Increase Employee Saving
Richard H. Thaler
University of Chicago
Shlomo Benartzi
University of California, Los Angeles
As firms switch from defined-benefit plans to defined-contribution plans, employees bear more responsibility for making decisions about how much to save. The employees who fail to join the plan or who participate at a very low level appear to be saving at less than the predicted life cycle savings rates. Behavioral explanations for this behavior stress bounded rationality and self-control and suggest that at least some of the low-saving households are making a mistake and would welcome aid in making decisions about their saving. In this paper, we propose such a prescriptive savings program, called Save More Tomorrow (hereafter, the SMarT program). The essence of the program is straightforward: people commit in advance to allocating a portion of their future salary increases toward retirement savings. We report evidence on the first three implementations of the SMarT program. Our key findings, from the first implementation, which has
We are grateful to Brian Tarbox for implementing the Save More Tomorrow plan and for sharing the data with us. We would also like to thank many people at the following companies for their help: Financial Engines, Hewitt Associates, Ispat Inland, John Hancock, Philips Electronics, and the Vanguard Group. Jodi Dicenzo, Bill Sharpe, and Steve Utkus deserve special thanks. We are also grateful for comments from David Laibson, Brigitte Madrian, Casey Mulligan, Ted O’Donoghue, and Cass Sunstein. Benartzi would like to thank Reish Luftman McDaniel & Reicher for financial support. Save More Tomorrow is a registered trademark of Benartzi and Thaler, but the plan is available at no charge to any company that is willing to share data on the outcomes. This paper is dedicated to Sherwin Rosen, Thaler’s thesis advisor. Thaler would not be an economist today if not for Rosen’s
Richard H. Thaler
University of Chicago
Shlomo Benartzi
University of California, Los Angeles
As firms switch from defined-benefit plans to defined-contribution plans, employees bear more responsibility for making decisions about how much to save. The employees who fail to join the plan or who participate at a very low level appear to be saving at less than the predicted life cycle savings rates. Behavioral explanations for this behavior stress bounded rationality and self-control and suggest that at least some of the low-saving households are making a mistake and would welcome aid in making decisions about their saving. In this paper, we propose such a prescriptive savings program, called Save More Tomorrow (hereafter, the SMarT program). The essence of the program is straightforward: people commit in advance to allocating a portion of their future salary increases toward retirement savings. We report evidence on the first three implementations of the SMarT program. Our key findings, from the first implementation, which has
We are grateful to Brian Tarbox for implementing the Save More Tomorrow plan and for sharing the data with us. We would also like to thank many people at the following companies for their help: Financial Engines, Hewitt Associates, Ispat Inland, John Hancock, Philips Electronics, and the Vanguard Group. Jodi Dicenzo, Bill Sharpe, and Steve Utkus deserve special thanks. We are also grateful for comments from David Laibson, Brigitte Madrian, Casey Mulligan, Ted O’Donoghue, and Cass Sunstein. Benartzi would like to thank Reish Luftman McDaniel & Reicher for financial support. Save More Tomorrow is a registered trademark of Benartzi and Thaler, but the plan is available at no charge to any company that is willing to share data on the outcomes. This paper is dedicated to Sherwin Rosen, Thaler’s thesis advisor. Thaler would not be an economist today if not for Rosen’s
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