Financial education has “shockingly little” impact on consumer behaviour when it comes to saving for retirement, Harvard economist David Laibson told a pension forum in Toronto Thursday.
“In the U.S., we run experiments where we educate people at the time of decision making and we see almost no change in behaviour,” Laibson told the Second National Summit on Pension Reform.
Laibson said he was responding to a comment made by Sun Life Financial President and Chief Executive Officer Dean Connor that improved financial literacy is one of the keys to improving Canadians’ retirement savings.
Connor, who said he’s opposed to introducing another mandatory savings program similar to the Canada Pension Plan, said individuals have opportunities to save more.
High consumer debt loads are a factor in Canadians’ ability to save for retirement, both Connor and Laibson said in separate speeches during the conference sponsored by Canada’s Public Policy Forum.
“I’m very worried about levels of household debt in Canada and the U.S.,” said Laibson. “I do think we’ve created a system where it’s become easier and easier to borrow and spend your future wealth.”
In designing new retirement savings programs, Laibson said, behavioural economics show people are more likely to contribute to a plan that prevents them from taking the money out early.
“People know they have self-control problems and they like the idea of an account that ties up their money,” he said.
Laibson is a specialist in “nudge” behaviour, which theorizes that people can be driven to make better decisions without using penalties and bans.
The theory is relevant to pension plan design as countries like Canada try to figure out how to get people to save more for retirement as mandatory workplace retirement plans become less common.