Women’s knowledge about their pension plans

Women’s knowledge about their pension plans

DeVaney, Sharon A


Using information collected in 1999 on 976 female workers (aged 45-58 in 1999) from the National Longitudinal Survey of Young Women, this study explored the extent of the women’s knowledge about their pension plans.The results reveal that only 21% of the sample felt they knew “a lot” about their pension, yet the women are getting close to retirement at the same time as they are probably approaching the peak of their earning ability. Educators and financial advisors should make a special effort to help workers, especially women, increase their human capital related to financial issues.


The “graying” of the American population is presenting new challenges for those who are aging and for the providers of services for an aging population. Women are more financially vulnerable than men because of longer life expectancy and greater likelihood of chronic disease (Steckenrider, 1998). Currently many older women depend primarily on Social Security and Medicare for retirement income and health care, respectively (Employee Benefit Research Institute, 1997a; Steckenrider, 1998). However, employee pension plans are increasingly viewed as the most appropriate alternative retirement income source for enabling older women to maintain their financial independence (Employee Benefit Research Institute, 1997b).

Employers and financial advisors encourage workers to participate in employee pension plans, but not all workers do so. In fact, the most likely participant in a workplace pension plan is a White male who has high earnings, is highly educated, aged 45-54, and working for a public sector employer (Copeland, 2002, p. 7). However, in 1999, only 63.7% of all workers were employed by an employer who sponsored a pension plan and only 52% of all workers participated in a plan (Copeland, 2002).

The level of knowledge of participants in the pension plans is another concern. Although researchers from both government and industry have examined participation in employee pension plans, there is little information on pension knowledge. Instead, researchers have focused on participation in pension plans, the amount of the contribution, number of investment alternatives, and investment choice, because this information is more readily available (Yakoboski, 2000; Yakoboski & VanDerhei, 1996).

Because pension plans are an important source of retirement income in the future, and because the employment rate of women has risen steadily over the years (Bosworth, Burtless, & Sahm, 2001), it is appropriate to learn about women’s pension knowledge. If women lack knowledge about their pension plans, it is likely to contribute to their financial vulnerability in later life. Furthermore, information about the level of pension knowledge held by women will assist the developers of financial education programs and providers of services. Hence, the purpose of this study is to explore the extent of female workers’ pension knowledge and the factors related to their pension knowledge by using a national sample of female workers who have an employer pension plan.


Worker’s Pension Knowledge

In a study of worker’s pension knowledge, Mitchell (1988) evaluated the quality of workers’ information regarding pension offerings using both administrative records and worker reports of pension provisions. She found that older, better educated, upper income workers and those in large firms were better informed about their pensions. She found that women were better informed than men. However, DeVaney and Su (1997) examined four questions measuring investment knowledge held by workers in the 1996 Retirement Confidence Survey and found that female workers were less knowledgeable about investing than men. DeVaney and Chien (2001) found that older, better educated, and full-time workers were more likely to participate in retirement plans.

Theoretical Framework

This study proposes that two theories, economics of information and human capital, can contribute to an individual’s level of knowledge about their pension plan. In an ideal setting, workers should be well-informed about their pensions. However, understanding one’s pension implies an investment of time and effort, and this varies among workers. According to the economics of information theory (Stigler, 1961), consumers will search for information because prices vary in the market place. The theory states that consumers will continue to search as long as the marginal benefits of additional search exceed the costs of search. Workers who invest more effort in learning about their pensions are assumed to have more knowledge of their pension plans (Mitchell, 1988).

Having more knowledge of one’s pension could also represent the accumulation of human capital (Bryant, 1990). For example, an individual who manages the family finances may eventually become more financially knowledgeable than an individual who spends a limited amount of time managing this information. As an individual gains experience with the family finances, she might use similar knowledge and skills in learning about and understanding her pension.

The factors included in this study are demographics, household financial status, and work-related factors. Of the demographic characteristics, age, marital status, and attitude toward retirement were included to show individual preferences. Household size was included to measure the time constraint that having a larger family might place on a female worker. Education, household net worth, wages, type of occupation, pension tenure, and hours worked per week are likely to reflect the accumulation of knowledge and skills related to the pension.


Data and Sample

The data used in this study are drawn from the National Longitudinal Survey (NLS) of Young Women. The Young Women cohort is one of the four NLS original cohorts. The first sample included 5,159 young women aged 14-24 on December 31, 1967, and they were first interviewed in 1968. They have been surveyed 20 times through the most recent survey conducted in 1999 (NLS of Young Women User’s Guide, 2001). The retention rate for the Young Women as of the 1999 interview was 56.2%, or 2,900 of the original 5,159 respondents. An analysis of selected characteristics in the tenth year samples found that noninterviews had not seriously distorted the sample representativeness of any of the cohorts for the characteristics studied. However, further analyses of differential attrition have shown that respondents with lower socioeconomic status tended to leave the sample at a higher rate than those with higher incomes and education (Rhoton & Nigi, 1991; Zagorsky & Rhoton, 1998).

The sample used in this study consisted of respondents who had working experience and who were participants in at least one employee pension plan in 1999. Because the respondents without an employee pension plan could not answer the question about their knowledge of their employee pension plan, they were excluded. The sample consisted of 976 respondents. In 1999, the women in the sample were between 45 and 58 years old. This should be an optimal age to evaluate knowledge of their employer pension plan. All of the variables used in this study are drawn from the 1999 survey.

Dependent Variable

The dependent variable was the women’s self-reported knowledge about their pension plan. The extent of their knowledge was based on the question in the 1999 NLS of Young Women that stated, “How much do you know about your pension plan?” The three possible responses were “a lot,” “something,” and “a little or nothing.”

Independent Variables

The independent variables were demographic characteristics, household financial status, and work-related factors. The demographic characteristics were age, marital status, education, and household size. Education measured both information search and the human capital to accumulate and process the information related to pensions. Because women tend to be the primary care-providers in the household, household size was used as a proxy for time constraint.

Household net worth was used to measure financial status and the accumulation of financial knowledge. Because a larger amount of net worth implies the need for greater organization and management of resources, household net worth can serve as a proxy for an individual’s financial knowledge (Mitchell, 1988).

The items measuring work were wages, hours worked per week, the number of years in the pension plan, professional occupation, and attitude toward retirement. Occupation was coded in the following two categories: (a) executive, administrative, and managerial job or professional specialty; and (b) other. If respondents agreed with the statement, “Retirement is a pleasant time in life,” their attitude toward retirement was coded as positive. If they disagreed, the response was coded as negative. Although most people cope well with retirement and describe it in favorable terms, a substantial minority experience problems (Richardson, 1993).


Analysis of variance (ANOVA) and x^sup 2^ analysis were used to develop a profile of the three categories of pension knowledge. ANOVA allows for the comparison of average differences from more than two groups, whereas x^sup 2^ analysis is used to compare the qualitative responses from more than two groups (Devore, 1995). This study employed only univariate analysis to explore a model of women’s knowledge of their pension plans because of the lack of previous empirical studies and the existence of a theoretical framework. Although human capital and information search are being explored as possible explanations, this is probably the first study to propose them as a theoretical framework.

ANOVA was conducted for the following continuous variables: age, education, household size, household net worth, wage, hours worked per week, and years of participation in a pension plan. An x^sup 2^ analysis was conducted to show group differences for the categorical variables of marital status, professional occupation, and retirement attitude. More than 95 % of the women in the sample were white. Because there were not enough observations in the nonwhite category to conduct x^sup 2^ analysis, the variable for race/ethnicity was deleted from the study.


Descriptive Statistics

Table 1 shows the descriptive statistics of the sample. About 21% of the women said they knew “a lot” about their pension plans, 43% knew “something,” and 36% knew “a little or nothing.” A typical respondent was 50 years old, married, with 14 years of education, and with two people in the household. The average number of years of education was relatively high because the sample consisted of women who worked full time either in the survey year or in the past year and participated in at least one pension plan in 1999.

The household net worth averaged $226,830, and the median value was $156,600. For wages, the average was $35,860, and the median $33,000. The average number of hours worked per week was 40. The average length of time in the pension plan was 11 years. About 40% had a professional job. Approximately 94% agreed that “Retirement is a pleasant time in life,” that is, they held a positive attitude toward retirement.

Profiles of Women’s Pension Knowledge

ANOVA and X^sup 2^ analysis were used to establish a profile according to the female worker’s pension knowledge. The results from ANOVA showed that there were significant differences for education, net worth, wages, and hours worked by pension knowledge. The number of years in a pension plan showed marginally significant differences across the three subgroups. There were no differences for age and household size (see Table 2).

An explanation for the lack of an effect for age may be that the NLS of Young Women represents a limited age range. Thus, the 14-year span of ages in the group may be too narrow a range to show any differences by age.

There were significant differences in the number of years of education attained by the three groups. The group most knowledgeable about their pension was significantly better educated compared to those with the least knowledge.

The amount of net worth was significantly different among the three groups. The group with the most pension knowledge showed a significantly higher average net worth compared to those with “little or no” or “some” knowledge about their pension plan. Women with greater household net worth may have developed more knowledge and skills in managing finances and this might have been transferred to the accumulation of knowledge about their pension plan.

Wages differed significantly across the three groups. Higher paid women were more knowledgeable about their pension plans. In general, the dollar amount of wages relates to a worker’s skills. The number of hours worked differed significantly for one group-those who knew “little or nothing” about their pension plan. This group worked, on average, two or three hours less than those who knew “a lot” or “something” about their pension plan.

An x^sup 2^ analysis showed that there were differences for professional occupation and retirement attitude. Higher proportions of respondents who had professional jobs and those who had a positive attitude toward retirement were in the most pension-knowledgeable group. Because a professional job requires more complex knowledge and skills, the accumulated knowledge can be helpful in processing information related to pension plans. Those who had a positive attitude toward retirement may be more interested in planning for a financially secure future and would be more willing to seek information about their pension plan.


Most previous models examining pensions and wealth have focused on male workers (Gustman & Juster, 1995), while studies on female worker’s pension plans are relatively limited. This study was a first attempt to explore the topic of women and knowledge of their pension plans. Utilizing the theories of economics of information and human capital, this study explored the extent of women’s pension knowledge. Because previous research has not focused on women and pensions, this study was both descriptive and analytical.

The analysis revealed a profile for each group by their level of knowledge of their pension plan (a little or nothing, something, or a lot). As might be expected, women with more knowledge about their pension plan probably have further developed human capital as shown by their level of education and the greater likelihood of being a professional worker. Women with more knowledge had a higher net worth and this could be an indicator of greater involvement in family financial management. Women who said that they knew “a lot” received higher wages. In contrast, those who knew “a little or nothing” about their pension plan did not work as many hours, had fewer years of education, and received less pay. Those who knew “a little or nothing” about their pension plan were less likely to have professional jobs.

Educators and financial advisors will find the results helpful as they seek to create learning environments and share advice. Educators and financial advisors should make a special effort to help workers increase their human capital related to financial issues. The results of this study reveal that only 21% of the sample felt they knew “a lot” about their pension, yet the women are getting close to retirement at the same time as they are probably approaching the peak of their earning ability. Interestingly, the results indicated that family characteristics such as marital status and household size did not affect the level of knowledge. A popular stereotype that married women learn financial management from their spouses was not supported here. Furthermore, the results did not support the idea that women with more family members had less time to become knowledgeable about their pension plan.

More elaborate studies on women and pensions are needed. For example, a study with women in a wider range of ages is likely to provide additional information. Also, a data set that included both men and women would be helpful in ascertaining whether there are differences in pension knowledge between men and women. A larger number of minority women in the sample would be beneficial so that any differences in pension knowledge by race or ethnicity could be determined.


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Sharon A. DeVaney, PhD, CFCS

Associate Professor

Department of Consumer Sciences and Retailing, Purdue University

Haejeong Kim, PhD

Department of Consumer Sciences and Retailing, Purdue University

Copyright American Association of Family & Consumer Sciences Apr 2003

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