NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Borrowing to Save? The Impact of Automatic Enrollment on Debt

John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian, William L. Skimmyhorn

NBER Working Paper No. 25876
Issued in May 2019
NBER Program(s):Aging, Labor Studies, Public Economics

Does automatic enrollment into retirement savings plans increase borrowing outside the plan? We study this question using a natural experiment created when the U.S. Army began automatically enrolling its newly hired civilian employees into the Thrift Savings Plan (TSP) at a default contribution rate of 3% of income. We find that four years after hire, automatic enrollment causes no significant change in debt excluding auto loans and first mortgages (point estimate = –0.6% of income), auto debt (point estimate = 1.1% of income), or first mortgage balances (point estimate = 2.2% of income). The auto and first mortgage debt effects’ point estimates are large relative to the savings effect inside the TSP (point estimate = 4.1% of income) and are statistically significant in some specifications. Inferences about total effects on net worth depend on what automatic enrollment is doing to non-TSP assets, which we do not observe.

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Document Object Identifier (DOI): 10.3386/w25876

 
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