Abstract: Although households have invested billions in 401(k) accounts, these
balances may not be new saving if workers invest money that they would
have saved in the program's absence. In this paper, I assess the
effect of the 401(k) program on saving by comparing changes in the
wealth of 401(k) eligible and ineligible households over the 1989-1998
period using data from the Survey of Consumer Finances (SCF). This
comparison may yield misleading estimates of the effect of 401(k)s on
saving if eligible households have a higher taste for saving than
ineligible households or if they begin the 1989-1998 period with
greater amounts of wealth. I adjust for these potential biases by
constructing subjective measures of saving taste from questions on the
SCF and by transforming the wealth measure with the inverse hyperbolic
sine. Incorporating these adjustments suggests that 401(k)s have
little to no effect on saving.
Keywords: 401(k) program, saving, wealth data, survey of consumer finances
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Last update: January 28, 2002
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