TITLE

Misunderstanding Savings Growth: Implications for Retirement Savings Behavior

AUTHOR(S)
Mckenzie, Craig R.M; Liersch, Michael J
PUB. DATE
October 2011
SOURCE
Journal of Marketing Research (JMR);Oct2011 Supplement 1, Vol. 48, pS1
SOURCE TYPE
Academic Journal
DOC. TYPE
Article
ABSTRACT
People systematically underestimate exponential growth. This article illustrates this phenomenon, its implications, and some potential interventions in the context of saving for retirement, where savings grow exponentially over long periods of time. Experiment 1 shows that a majority of participants expect savings over 40 years to grow linearly rather than exponentially, leading them to grossly underestimate their account balance at retirement. Experiment 2 demonstrates that this misunderstanding leads to underestimates of the cost of waiting to save, which makes putting off saving more attractive than it should be. Finally, Experiments 3-5 show that highlighting the exponential growth of savings motivates both college students and employees to save more for retirement. Making clear to employees the exponential growth of savings before they make crucial decisions about how much to save may be a simple and effective means of increasing retirement savings.
ACCESSION #
66638369

 

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