Borrowing to Save? The Impact of Automatic Enrollment on Debt
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.
Document Object Identifier (DOI): 10.3386/w25876