The study, “Employee Financial Literacy and Retirement Plan Behavior: A Case Study,” pointed out that there hasn’t been much study of how financial literacy varies by employee characteristics, and how that variation might play out in employee practices when it comes to saving for retirement. So authors Robert Clark, Annamaria Lusardi and Olivia S. Mitchell set out to discover whether, and how much, variation might result from financial literacy or the lack thereof.

Their pool of subjects was all active employees of the Federal Reserve System, and they drew on administrative data to examine participation in and contributions to the Thrift Saving Plan, the system’s defined contribution plan. Not only did the researchers examine employee behavior, but they also examined changes in employee plan behavior one year after employees completed a learning module about retirement planning.

Federal Reserve employees, the paper pointed out, “are substantially more financially literate than the population at large. Most importantly, financially savvy employees are also most likely to participate in their defined contribution plan. Sophisticated workers contribute three percentage points more of their earnings to the defined contribution plan than do the less knowledgeable, and they hold more equity in their pension accounts.” But the results, nonetheless, were surprising in where and among whom the differences occurred.

Survey findings

While the authors found little difference in financial literacy across age groups, and only modest differences according to years of tenure, they did uncover larger differences depending on sex, marital status and annual salary.

For instance, 75 percent of the male Federal Reserve employees answered four or five of the literacy questions correctly, compared with just 56 percent of the female employees. In addition, 70 percent of married employees also answered four or five questions correctly, compared with just 60 percent of nonmarried ones.

But the big differences came as salary levels rose. Those with incomes over $250,000 correctly answered four or five questions, with an average of 4.7 correct answers.

The learning module affected employee behavior by reducing plan dropout rates and increasing participation rates, suggesting that program participation positively affected employee behavior.

The paper concluded that not only did employer-provided information about the need to save for retirement increase “workers’ willingness to participate in and contribute” to the plan, but employers considering educational programs “can be more confident that these programs will boost employee awareness and enhance retirement readiness.”