Can employees’ subjective ages impact their savings behaviour?

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Different generations running © Jovan Mandic /123RF Stock PhotosIn 2018, a 69-year-old man named Emile Ratelband in the Netherlands lost a legal fight to change his birth date to 20 years earlier, arguing that he didn’t feel as old as he was.

The court case inspired a paper looking into the idea of subjective age versus biological age and how it impacts economic behaviours, says Thomas Post, an associate professor of finance at Maastricht University and one of the paper’s co-authors.

It’s long been understood that biological age affects economic decisions, and how old a person feels impacts behaviours like exercising, working and shopping.

Using U.S. health and retirement study data from 2008 to 2014, which asked respondents about their the subjective age, the paper’s authors set out to compare what age people feel with how much they save, whether they work or are retired and how they invest, Post says.

They found 75 per cent of people felt younger than their real age and, indeed, subjective age identity impacts people’s savings patterns.

Going further, the researchers sought to understand the savings patterns by looking at people’s ability and preferences. The ability channel, as the researchers referred to it, can explain how people may feel younger because they have more cognitive ability. This can translate to increased savings because they’re able to make smarter decisions, notes Post.

Also, when it comes to preferences, people who feel younger may want to deny their actual age, choosing to partake in activities associated with younger people, such as taking trips or going shopping. “Now, if I shop more than others or I go on [more] vacation than others, what does it mean?” he asks. “I consume more, [so] I save less.”

Therefore, when looking at the preference channel, it’s expected that people who feel younger will be saving less. As a result, there are two potential outcomes for those who feel subjectively younger.

“The ability channel would tell us, the younger I feel, the more I save because I’m smart and I understand the savings process,” says Post. “Whereas the preference channel would tell us the younger I feel the less I save.”

Looking at the data, the researchers found a “hump shape profile” for savers — the younger people feel, the stronger the ability channel, so they save more. However, for those who feel much younger, the preference channel is more important.

The research also found people who feel younger plan to stay in the workforce longer than those who feel older.

The findings can have implications for defined contribution plan sponsors from both a communications and a marketing perspective, as well as for plan features and product design, Post says.

“If I were a DC fund, first of all, what I would like to do is to analyze what my plan members say about their subjective age because it’s interesting to know that, on average, in large samples, subjective age is this or that, but we also know that plans differ a lot in terms of how their membership looks. . . . That may depend on the industry, the age structure or whether it’s a plan for government employees or whatever. So we cannot just extrapolate from population averages to a particular plan.”

Once a plan sponsor understands how old its members feel, it can adapt its communications to reflect its typical member. For example, if plan members feel younger, it can shift its language away from using terms like ‘saving for old age’ or ‘saving for a pension.’ “Maybe then the wording of the communication should be adapted to their particular circumstances — that they are a group that wants to feel young. Maybe we then should talk about, ‘Hey, why not save for later consumption, for doing great stuff some years later?’”

DC plan sponsors can also consider segmented communications to target members who feel older or younger. “Why not send these members different messages in order to tailor communication to their subjective age identity?”

Understanding subjective age can also be important in providing a better sense of when a plan member will retire, which becomes important for products that assume retirement age is 65.

Ultimately, determining how old plan members feel is about asking just one question, Post adds. “It’s just a question, and I think it’s definitely worth trying to [assess] it and see whether, within a plan ,we see similar relationships [to] what we find in our data and then to adapt products and marketing and communication accordingly.”

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