Narrow Framing and Retirement Savings Decisions

Abstract

Theoretical studies suggest narrow framing underlies individuals' saving decisions. When narrow framing is applied to retirement savings decisions, narrow framers tend to make decisions about present consumption without considering future consumption, i.e., saving for consumption in retirement. Time preference for the present and narrow framers' preference to maintain the status quo lead to a decision that is less likely to increase savings for retirement. This study provides empirical evidence that narrow framing bias affects retirement savings decisions. Using a two‐part model, the probit estimation indicates narrow framers anticipated being less willing to increase retirement savings contributions compared to broad framers, and the OLS regression estimates that narrow framers anticipated contributing less than broad framers. Here, narrow framers anticipated being less willing to increase retirement savings (62.6% vs. 71.9%) and contributing less ($70.90 vs. $88.40) than broad framers, thus providing empirical evidence regarding the effects of behavioral biases on financial decisions.

Racial/ethnic differences in holding a retirement saving motive: A decomposition analysis

“…(2019) found positive associations between financial literacy and long‐term financial behaviors. While the direct link between financial knowledge and establishing savings goals has not been comprehensively investigated, previous studies imply that increased knowledge would lead individuals to consider long‐term consequences and the importance of planning for the future (Shin et al ., 2019). This would support retirement saving as an active and salient goal.…”

Behavioral consequences and intervention of financial shocks

“…Narrow framers are also less likely to be willing to increase their retirement savings contributions, and less willing to increase their monthly contributions to retirement plans (Shin et al, 2019). Narrow framing can impact the mental accounts people use to manage their household spending and budget -a process that seems to be more explicit for individuals with fewer financial resources (Thaler, 1999;Heath and Soll, 1996).…”

An Overview of Framing Behaviors in Financial Decisions

“…Interestingly, we'll keep on making decisions long after reading this paper, but hopefully, ones which will be wiser! Regardless to the big number of decisions we make on a personal level and the knowledge we acquire from the experiences of others, we still make many unbalanced decisions (Agnew, et al, 2008;Rabin & Weizsacker, 2009;Shin, et al, 2019).…”

“…Academia has been working on understanding how people make choices for centuries (Read, et al, 1999;Shin, et al, 2019). Even the old Greek philosophers argued about it.…”