Financially Distressed Consumers' Information Search for Retirement Plans

Article excerpt

Using data from the Mature Market Survey (MMS) from an educational foundation, this study examined financially distressed consumers' information search behavior for retirement plans. Findings showed that financially distressed consumers sought financial information from media and professional services when making a retirement plan. Age, income, and gender were found to be positively related to the extent of the information search for retirement planning. Implications for consumer education and efficient financial information delivery are discussed.

Justification

The financial health of pre-retirees is very important for future retirement success. However, soaring living costs increased individuals' debt. More people are using credit cards to pay their basic bills, and the average household credit card balance has risen to $9,312 in 2004 (Stat bank, 2005). Furthermore, families near retirement are increasingly borrowing to make ends meet and getting more in debt (Employee Benefit Research Institute, 2006; McGhee & Draut, 2004).

Financially distressed consumers' retirement creates a serious concern due to the lack of preparation. They are less likely to participate in employer-provided retirement plans and have individual savings for retirement due to the limited resources and over-indebtedness. In addition, they would find the potential changes of Social Security benefits more challenging. One large group of consumers who exhibit financial distress is credit-counseling clients. However, little is known about their retirement planning behavior. This study investigates financially distressed consumers' information search behaviors in retirement planning and factors of behaviors. Results will provide insights into retirement planning of financially distressed consumers.

Method and Data

This study employed the theory of imperfect market information (Stigler, 1961) as the guidance of the conceptual model development. When applied to retirement planning, this theory implies that the benefits of search include purchasing pension plans with a higher return, low risk, satisfaction with the decision, and more pension knowledge. The costs of information search for retirement plans include both time and monetary costs. In this study, different sources of information (personal, media, bank, Internet, and professional service) and the extent of information search were examined. Factors related to retirement information search were age, risk tolerance, income, education, gender, marital status, race, health, financial attitude, and expected retirement income source. Financial attitude and expected retirement income source were used as proxies of previously accumulated knowledge.

For empirical analyses, binary logistic regressions and an ordered logistic regression were employed. A set of binary logistic regression was conducted to examine the factors affecting each information source, namely personal information, media, bank, Internet, or professional services. Ordered logit analysis was employed to investigate the extent of financial information searched when designing a retirement plan.

Data were drawn from the Mature Market Survey (MMS), which was sponsored by InCharge Education Foundation. The MMS was collected between October 6, 2003 and December 15, 2003. For retirement information search, only respondents who were interested in obtaining help for designing a retirement plan or managing IRA and 401 (k) plans were selected (n=353).

Results

Financially distressed consumers obtained retirement information from a variety of sources such as media, Internet, friend or family, banks, financial planners/ counselors, lectures, lawyers, and accountants. From binary logit analyses, age, income, gender, marital status, and current financial situation were found to impact retirement information search. Compared to younger consumers, older financially distressed consumers were less likely to seek retirement information from personal source. …