Saving Regret Project

Many advocate paternalistic nudging to foster saving, especially to increase economic resources in old age. A justification for these interventions is the belief that many people have under-saved and that the reason for under-saving is that often people procrastinate, particularly about saving. An implication is that on hindsight, the preferred choice of such persons would be to have saved more than they actually did. If persons would have wanted to have saved more, we say as a short hand that they have “saving regret.”

Saving regret may have many reasons. In addition to procrastination, it may have been a failure of planning, miscalculations, a failure to have sufficient insurance, or simply the effect of negative shocks. The general aim of this project is to use comparable data sets in very different countries — the U.S., Singapore and 19 European countries including Israel — to compare the extent of saving regret and to shed light on the mechanisms leading to saving regret and how these may interact with the policy environment.

So far, there is little empirical evidence on the saving behavior that individuals would have chosen on hindsight. To fill this empirical gap, we fielded two surveys in the RAND American Life Panel (ALP), a similar survey as part of the Singapore Life Panel (SLP), and in Wave 8 of SHARE, the Survey of Health, Ageing and Retirement in Europe, in 17 EU countries, Switzerland and Israel.

Viewed in international context, Singapore is similar to the U.S. in encouraging self-reliance, but it has a smaller safety net and the institutions surrounding economic preparation for retirement are very different. In particular, Singapore mandates contributions into funds managed by the Central Provident Fund. The EU countries have a much tighter safety net than both the U.S. and Singapore, in particular large pay-as-you go systems for pensions and universal health insurance. Moreover, some EU countries have mandatory public long-term care insurance. The need to save beyond what is mandatory is thus less pronounced in these countries than in the U.S. and Singapore.

One specific aim is to measure and compare the significance of the various mechanisms that might lead to saving regret. Is procrastination the main cause? Or is it the effect of negative shocks? Another aim of this project is to study the associations between the extent of saving regret and the tightness of the social safety nets in this international context.