Building Retirement Savings for Young Adults

Five young adults painting a mural.
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An evaluation of the Jonathan Clements Getting Going on Savings Initiative will measure the impact of gifting $1,000 contributions to Roth IRAs

Motivation

Many Americans lack savings. Nearly 40 percent of adults could not pay $400 if a financial shock occurred.1 Saving for retirement can be an even more elusive goal, especially when employers do not offer retirement accounts that grow alongside paychecks. Approximately one-third of workers don’t have access to retirement plans through their employers,2 and in a given year only 15 percent of households will make independent contributions to an Individual Retirement Account (IRA).3

There is a need for more rigorous evidence around how to encourage and sustain long-term savings. One approach is to motivate broader and earlier use of existing retirement offerings, particularly among populations that may be least likely to pursue them. This project will test an intervention that encourages young adults who are relatively new to the labor market to get started on their long-term financial planning by opening Roth IRA accounts.

Intervention and study design

Researchers will conduct a randomized evaluation to measure the impacts of providing a $1,000 cash transfer to fund a Roth IRA on savings and other financial outcomes. The underlying theory of change is that if young people open IRA accounts and invest funds, this will motivate them to start thinking about long-term financial planning and increase their sense of financial self-efficacy, which will promote more active financial management and planning.

This study will be implemented in partnership with the city of Boston, and will involve young adults ages 18-24 who participate in a city-run summer jobs program. Participants will be randomly assigned to one of the following:

  • A control group that receives information about Roth IRAs and an opportunity for direct support to open an account, or
  • A treatment group that receives information about Roth IRAs and an opportunity for direct support to open an account, as well as a $1,000 Roth IRA contribution.

Outcomes for the treatment and control group will be compared across various forms of survey and administrative data to measure near-term and long-term impacts. This study will answer research questions like the following:

  1. Do members of the intervention group have higher savings balances than the control group three months, six months, or nine months after the intervention? Will members of the intervention group withdraw funds from IRAs to use for more immediate needs, or will they leave these untouched? Will they continue to contribute to savings accounts?
  2. To what extent, if any, does the program enhance participants’ confidence in managing their finances? To what extent does it improve outlooks about their financial futures?
  3. Does the intervention impact other measures of financial security, like debt or access to credit?

Partners

The research team is led by Matthew Notowidigdo, Raymond Kluender, and Alicia Modestino. This project is an ongoing collaboration between J-PAL North America, the Boston Office of Youth Employment and Opportunity, the John C. Bogle Center for Financial Literacy, and individuals close to Jonathan Clements.

Project Origin

Financial columnist Jonathan Clements spent decades writing about how to save, invest, and manage finances for his Wall Street Journal column “Getting Going,” his platform HumbleDollar.com, and nearly a dozen books he published about personal finance. In 2024, Clements was diagnosed with a terminal illness and decided to use the proceeds from his last book to help others with their financial planning. Throughout his career, he wrote frequently about the power of starting small and investing early. Clements has envisioned this program as a way to enable young adults from low-income households to set themselves up for long-term financial success. The John C. Bogle Center for Financial Literacy and other individuals close to Jonathan Clements have been working to organize funds and implement Clements’ vision.

For more about Clements’ life, work, and motivation for this project, read his Wall Street Journal article, Some Final Personal-Finance Advice From Jonathan Clements, and the New York Times article A Money Guru Bet Big on a Very Long Life. Then He Got Cancer.

To learn more about this study you can reach out to Jessica Sashihara, Senior Research and Training Manager at J-PAL North America.

References

  1.  Federal Reserve Board of Governors 2022 survey

  2. Chalmers et al. (2024). “Will State-Based Retirement Savings Plans Boost Retirement Saving? New Evidence from OregonSaves.” 

  3. The Investment Company Institute. (2024). “The Role of IRAs in US Households’ Saving for Retirement.”