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Financial Literacy: Implications for Retirement Security and the Financial Marketplace$
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Olivia S. Mitchell and Annamaria Lusardi

Print publication date: 2011

Print ISBN-13: 9780199696819

Published to Oxford Scholarship Online: January 2012

DOI: 10.1093/acprof:oso/9780199696819.001.0001

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Financial Literacy and 401(k) Loans

Financial Literacy and 401(k) Loans

(p.59) Chapter 4 Financial Literacy and 401(k) Loans
Financial Literacy: Implications for Retirement Security and the Financial Marketplace

Stephen P. Utkus

Jean A. Young

Oxford University Press

Based on a survey of nearly 900 401(k) participants, we find that borrowing in 401(k) plans is related not only to standard demographic factors, but also to measures of general financial literacy, 401(k) contribution rates and wealth, non-retirement wealth, and credit card repayment behavior. Taken together, these results suggest that the decision to borrow from a 401(k) plan is linked to a broader impatience in financial decision-making, namely high discount rates in time preferences. Meanwhile, conditional on loan-taking, financial literacy appears unrelated to whether a given loan is used for consumption or investment purposes. Given the interrelated nature of these borrowing and behaviors, efforts to educate participants about the benefits and risks of 401(k) borrowing may need to be more comprehensive in scope than previously realized.

Keywords:   participants, loans, borrowing, retirement, plan, wealth, income, saving, balance

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