Essays on retirement accounts savings and investment behavior
Abstract
Voluntary retirement plans, such as defined contribution (DC) plans, and Individual Retirement Accounts (IRAs), have grown rapidly in the last two decades. Individuals can make decisions on whether to enroll in the plan, how much to contribute to the plan and how to allocate assets within the plan. The factors that affect individual’s participation, contribution and investment decisions are investigated in two essays. The 2004-05 MacroMonitor data are used for the analyses in both essays. The first essay examined the determinants of retirement plan decisions including participation and contribution in DC plans using a double hurdle model. In addition to age, income, marital status, education and occupation, workplace financial planning benefits were an important factor affecting participation in and contribution to a DC plan. The results suggest that interventions including information and social interactions, as well as financial literacy and education played an important role in retirement plan decisions. The results showed different effects for gender and risk tolerance in participation and the amount of the contribution. Women and risk averse respondents were more likely to participate than their counterparts but they contributed smaller amounts. The second essay built an investment risk-taking behavior model by integrating risk-taking behavior in a theoretical framework of perceived risk processing and tested the model in the context of investment in IRAs. The findings of analysis using a Structured Equation Model supported the proposed model. Search for financial information served as an input of perceived risk. Individuals who were more experienced in information search tended to perceive a lower risk toward stock investments. Also, perceived risk negatively affected risk-taking propensity in financial investments. Finally, risk-taking propensity impacted risk-taking behavior. People with greater risk-taking propensity preferred riskier choices and allocated their IRA investments to stocks. In addition, individual risk profiles including financial self-efficacy, investment time horizon, wealth and gender played an important role in perceived risk processing. Financial self-efficacy, investment time horizon, and the level of wealth had a negative effect on perceived risk but a positive effect on consumers’ risk-taking propensity. Compared to men, women had a lower level of risk-taking propensity in financial investments.
Degree
Ph.D.
Advisors
Widdows, Purdue University.
Subject Area
Marketing|Economics|Finance
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