Financial Literacy and Pension Fund Fees

Justine Hastings
Yale University

Olivia S. Mitchell
University of Pennsylvania
TIAA-CREF Institute

Eric Chyn
Yale University

February 2011 |

The findings discussed here suggest that people with lower levels of education, income, and financial literacy rely far more heavily on employers, coworkers, and friends, than they do on cost fundamentals, when choosing pension funds. These same types of individuals are also more responsive to the framing of fee information when identifying the relative attractiveness of pension fund managers. Moreover, the impact of viewing information in terms of gains as opposed to losses is sizable. The findings imply that participant awareness of higher net-return funds can be greatly enhanced when information on fees is simplified in terms of likely gains from selecting higher net-return funds. The impact of fund fee framing is largest for the least financially literate and the lowest-educated groups. These findings should interest policymakers who seek to determine how to better shape the environment in which workers make retirement saving choices.

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