|
Article Excerpt
This article identifies the constructs that influence an individual's intention to save for retirement and discusses how and when these factors can be changed by an agent trying to induce an individual to enroll in a retirement plan, increase his or her contribution to a plan, or purchase a particular retirement product. A broad array of psychological theories is used to develop a series of persuasive communications that can encourage a person to save. In addition, the persuasive communication approach is placed in the broader context of all efforts used to promote retirement savings.
**********
Many Americans are not saving enough for their retirement. According to the 2007 Retirement Confidence Survey (Helman, VanDerhei, and Copeland 2007), only 66 percent of workers report that they and/or their spouse have saved money for retirement and only 60 percent report that they are currently saving. Even among those who do save, savings can be insufficient. About half of all workers saving for retirement report that the total value of their investments, excluding their home and their defined benefit plan, was less than $25,000.
Because this problem has been well known for many years, both private agents and public policy makers have made numerous efforts to increase the extent to which American workers save for retirement. Basically, two broad approaches, the first structural and the second involving communication, have been used to do this.
Structural approaches attempt to change the conditions under which people save. For example, policy makers can alter the financial conditions associated with retirement saving (e.g., enhance tax benefits or raise retirement plan contribution limits), while employers can rework plan design (e.g., institute matching, enrollment by default, or automatic contribution increases). In contrast, communication approaches focus on changing both workers' knowledge and their perceptions. The former occurs through education (e.g., teaching the fundamentals of investing); the latter occurs through persuasion (e.g., creating normative pressures or enhancing the perceived importance of one's retirement years).
Past policy efforts have focused on structural changes and on education. For example, the most recent effort, the Pension Protection Act of 2006, contains several favorable retirement savings measures, including allowing employers to offer automatic enrollment plans as the default and permitting plan providers to offer certain investment advice without running afoul of advisor conflicts of interest. However, 42 percent of all working-age wage and salary employees do not work for an employer or union that sponsors a retirement plan (Copeland 2006) and therefore will not be affected by either of these changes. Moreover, these changes may not be sufficient even among workers who have access to employer-sponsored plans. A recent study by VanDerhei (2007) suggests that automatic enrollment will not be a magic bullet: although replacement rates (the percent of final salary that is replaced in retirement) will increase, they will still be below the traditional minimum recommended replacement level of 70 percent. (1) In addition, some experts doubt that automatic enrollment plans (even for new employees) will rapidly diffuse (Laise 2007). (2) The effects of the educational change (investment counseling) are also problematic: despite some successes, the impact of past employee educational programs on participation and contribution rates has been disappointing (Benartzi and Thaler 2007). Thus, the evidence suggests that although these structural and educational efforts have been and are valuable, there is a need to do more.
In this article, we focus on the role that can be played by persuasive communications. To depict the role of persuasive communications, we use a policy framework. The framework is constructed from the point of view of an agent who is trying to get an individual to join a retirement savings program (e.g., a 401(k) plan), increase his or her level of contribution to such a program, or make a discrete savings decision (e.g., buy an individual retirement account [IRA]). The likelihood a person will act is strongly influenced by two factors, intentions and inertia/procrastination. Because there is a very rich literature on the role inertia/procrastination plays in the decision to save (see Appendix 1), the focus in this article, and in our framework, is on intentions.
More specifically, the article identifies the factors that influence an individual's intent to save and provides guidance regarding how and when these factors can be changed by persuasive communications. In addition, the article places the persuasive communications approach in the broader context of all efforts being used to promote retirement savings.
INTENTIONS OVERVIEW
A person's intention to save for retirement is a conscious decision to engage in a savings action. In a host of psychological models, for example, social cognitive learning (Bandura 1986), reasoned action/planned behavior/trying/goal directed (Bagozzi 1992), and protection motivation/health belief (Tanner, Hunt, and Eppright 1991), the likelihood a person engages in a particular behavior is an increasing function of the strength of his intention to act. In our model, a person may have a strong transient intention that reflects little cognition. This transient desire is viewed as an intention because it can be influenced by many of the same constructs that can influence a more enduring intention.
An agent seeking to alter a person's intention to save can take an action that attempts to change a person's perceptions of the following constructs: his perceived ability to save, the benefits associated with saving, his concerns about the future, and the costs associated with saving (Figure 1). The first construct, a person's perception of his ability, has both an actual and a subjective dimension. In other words, a person may over- or underestimate his true or actual ability. The second construct is more straightforward: the primary types of benefits are short-term benefits (e.g., matching dollars or normative pressures), having a higher retirement income due to earning a higher real rate of return and having greater hope. The third construct is concerns. Both hopes, which indirectly affect intentions through their impact on benefits, and concerns, which directly affect intentions, are determined by how the agent flames the long-term consequences from saving. These consequences can be framed as either hopes (e.g., how having more money during retirement will make one's life better) or concerns (e.g., how additional retirement income is needed to stave off dire consequences). When a positive (hope) frame is employed, the agent's action simply enhances the benefits associated with saving. When a negative (concern) frame is employed, the agent's action has the potential to set in motion a much more complex set of psychological responses. Finally, the last construct, the cost of saving, depends on both the opportunity cost of the dollars put into a savings instrument and the deprivation associated with the value of these dollars.
[FIGURE 1 OMITTED]
Changing these constructs will influence a person's intention to save. First, increasing one's ability to save will increase the likelihood of saving as long as the benefits outweigh the costs. Second, increasing the benefits associated with saving will have a positive effect on the likelihood a person will save as long as a person thinks that he has the ability to save. Third, increasing concerns can either increase or decrease the likelihood a person will save: if a person thinks that he is capable of taking actions that will save him from an awful fate, then enhancing concerns will motivate a person to save; however, if he does not feel capable, enhancing concerns can reduce the likelihood of both current and future savings behaviors. In other words, when perceived ability is too low, a persuasive message that emphasizes concerns (e.g., a classic fear appeal) can be counterproductive. Finally, increasing the costs associated with savings will reduce the likelihood a person will act.
The remainder of this article examines these constructs in detail. Each section begins with a discussion of the basic theories behind the construct and their application to retirement savings and includes empirical evidence supporting the theories' relevance to retirement savings. The section then turns to the type or types of approaches--structural changes, education, and persuasive communications--that can be used to encourage individuals to save for retirement.
PERCEIVED ABILITY
One version or another of perceived ability plays a critical role in many psychological theories. In each theory, the construct has a somewhat unique definition and, in many cases, is given a theory-specific name. We use the language of Bagozzi (1992) in which perceived ability is synonymous with his term goal efficacy.
Bagozzi created the term goal efficacy to capture two distinct versions of efficacy: the self-efficacy dimension denoted by perceived behavioral control in the theory of planned behavior and the response efficacy dimension denoted by success and failure expectancies in the theory of trying. Goal efficacy is therefore a person's perception of the likelihood that she will reach a goal if she tries (Bagozzi 1992; Bagozzi and Edwards 1998). It includes a person's appraisal of both her ability to perform the instrumental act (self-efficacy) and her estimate of the likelihood that if she performs the act she will achieve the goal (response efficacy).
There is considerable empirical support for the hypothesis that the strength of a person's intention to act is a positive function of his degree of self- and/or response efficacy. This holds whether the action is framed as gaining a personal benefit (Bagozzi 1992; Bandura 1986), reducing a threat (Tanner, Hunt, and Eppright 1991), or obeying a norm (Schwartz 1977). In all cases, there is a boundary condition: a person must think that the positive consequences of acting outweigh the costs.
In all theories that include a self-efficacy construct, for example, trying (Bagozzi 1992), normative behavior (Schwartz 1977), and protection motivation (Tanner, Hunt, and Eppright 1991), very low levels of self-efficacy do more than simply reduce the likelihood of acting. When the action is viewed as producing a benefit or obeying a norm, self-efficacy plays a gate-keeping role. If a person's level of self-efficacy is so low that she does not think she is capable of engaging in an act, then she will not even try. In other words, when self-efficacy is low, increasing the benefits from acting will not result in a higher likelihood of acting. When the action is viewed as reducing a threat, both self- and response efficacy determine whether increasing the threat level leads to a higher or lower likelihood of acting. If either self-efficacy or response efficacy is too low, then increasing the threat level can reduce the likelihood a person will act now or in the future.
Although saving has not been one of the behaviors empirically studied, the argument that efficacy will influence savings behavior is consistent with two empirical findings. First, Farkas and Johnson (1994) and Public Agenda (1995) find a positive association between 401(k) participation...
|
