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  • February 2022
  • Article
  • Journal of Finance

Borrowing to Save? The Impact of Automatic Enrollment on Debt

By: John Beshears, James J. Choi, David Laibson, Brigitte C. Madrian and William L. Skimmyhorn
  • Format:Print
  • | Pages:45
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Abstract

Does automatic enrollment into a retirement plan increase financial distress due to increased borrowing outside the plan? We study a natural experiment created when the U.S. Army began automatically enrolling newly hired civilian employees into the Thrift Savings Plan. Four years after hire, automatic enrollment increases cumulative contributions to the plan by 4.1% of annual salary, but we find little evidence of increased financial distress. Automatic enrollment causes no significant change in credit scores (point estimate = +0.001 standard deviations), debt balances excluding auto debt and first mortgages (point estimate = -0.6% of annual salary), or adverse credit outcomes such as late balances or balances in collection, with the possible exception of increased first mortgage balances in foreclosure.

Keywords

Retirement Savings; Automatic Enrollment; Choice Architecture; Nudge; Financial Distress; Retirement; Saving; Borrowing and Debt; Behavior

Citation

Beshears, John, James J. Choi, David Laibson, Brigitte C. Madrian, and William L. Skimmyhorn. "Borrowing to Save? The Impact of Automatic Enrollment on Debt." Journal of Finance 77, no. 1 (February 2022): 403–447.
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About The Author

John Beshears

Negotiation, Organizations & Markets
→More Publications

More from the Authors

    • March 2025
    • Journal of Financial Economics

    Optimal Illiquidity

    By: John Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson and Brigitte C. Madrian
    • January 2025
    • Journal of Pension Economics & Finance

    Automatic Enrollment with a 12% Default Contribution Rate

    By: John Beshears, Ruofei Guo, David Laibson, Brigitte C. Madrian and James J. Choi
    • 2024
    • Faculty Research

    Smaller than We Thought? The Effect of Automatic Savings Policies

    By: James J. Choi, David Laibson, Jordan Cammarota, Richard Lombardo and John Beshears
More from the Authors
  • Optimal Illiquidity By: John Beshears, James J. Choi, Christopher Clayton, Christopher Harris, David Laibson and Brigitte C. Madrian
  • Automatic Enrollment with a 12% Default Contribution Rate By: John Beshears, Ruofei Guo, David Laibson, Brigitte C. Madrian and James J. Choi
  • Smaller than We Thought? The Effect of Automatic Savings Policies By: James J. Choi, David Laibson, Jordan Cammarota, Richard Lombardo and John Beshears
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