Fees, Framing, and Financial Literacy in the Choice of Pension Manager

Justine Hastings
Yale University and NBER

Olivia S. Mitchell
Department of Insurance & Risk Management,
The Wharton School, University of Pennsylvania

Eric Chyn
NBER and the Institution for Social Policy
Studies (ISPS) at Yale

February 2011 | Issue # 100

A growing literature shows how consumers make mistakes in a variety of different settings pertinent to financial decision-making. Using data from a randomized experiment in Chile, we show how different ways of presenting pension management fees shape consumer choices, and how responses to pension fee information varies by level of financial literacy. Our results indicate that, in choosing pension funds, those with lower levels of education, income, and financial literacy rely more on employers, friends, and coworkers, than on fundamentals. We also find that such individuals are more responsive to information framing when interpreting the relative benefits of different investment choices.

© 2013 and prior years, Teachers Insurance and Annuity Association - College Retirement Equities Fund (TIAA-CREF), New York, NY 10017