Journal of Finance Vol. 77 No. 1 2022

Borrowing to Save? The Impact of Automatic Enrollment on Debt

John Beshears^1,2,3; James J. Choi^1,4; David Laibson^1,2; Brigitte C. Madrian^5,1; William Skimmyhorn^6,7

¹ National Bureau of Economic Research · ² Harvard University · ³ Dana-Farber/Harvard Cancer Center · ⁴ Yale University · ⁵ Brigham Young University · ⁶ William & Mary · ⁷ United States Army

Abstract

Does automatic enrollment into a retirement plan increase financial distress due to increased borrowing outside the plan? We study a natural experiment created when the U.S. Army began automatically enrolling newly hired civilian employees into the Thrift Savings Plan. Four years after hire, automatic enrollmentincreases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence ofincreased financial distress. Automatic enrollment causes no significant change in credit scores, debt balances excluding auto debt and first mortgages, or adverse credit outcomes, with the possible exception of increasedfirst‐mortgage balances in foreclosure.

DOI

10.1111/jofi.13069

Volume

77

Issue

1

Pages

403-447

Language

en

Sources

openalex crossref bibtex:phds-export.bib

Cite

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