Project: Low-Income Households and 401(k) Auto-Enrollment

hand holding 401k


A growing body of evidence suggests that low levels of financial literacy among low-income households causes those households to be more easily influenced by both good and bad defaults and that they will be more likely to save if they are automatically enrolled in retirement savings programs; i.e., they save by default.


The Financial Literacy Center is measuring differences in default effects for employees at companies with auto-enrollment retirement plans, focusing on differential behavior by income.

Using the database available from Hewitt Associates, we can analyze data on three million employees at over 100 large U.S. companies. We will study both savings decisions and asset allocation decisions, and defaults that implement both low savings rates and high savings rates.

We hypothesize that low income households will be more sensitive to defaults than high income households, regardless of whether the savings default is a low contribution rate default or a high contribution rate default. Likewise, we expect low-income households to be more likely to accept asset allocation defaults, regardless of the default’s risk attributes.

The goal of the project is to design retirement savings strategies that are effective in encouraging retirement savings among low- and moderate-income populations.

Research Team

Principal investigators: David Laibson and Brigitte Madrian, Harvard University

Other research team members: John Beshears, Stanford Graduate School of Business; James Choi, Yale School of Management; and Gwendolyn Reynolds, National Bureau of Economic Research