A Treatise on the Family. G. S. Becker. Cambridge, MA: Harvard University Press. 1981. Gary Becker is one of the most famous and influential economists of the second half of the 20th century, a fervent contributor to and expounder of the University of Chicago free-market philosophy, and winner of the 1992 Nobel Prize in economics. Although any book with the word "treatise" in its title is clearly intended to have an impact, one coming from someone as brilliant and controversial as Becker certainly had such a lofty goal. It has received many article-length reviews in several disciplines (Ben-Porath, 1982; Bergmann, 1995; Foster, 1993; Hannan, 1982), which is one measure of its scholarly importance, and yet its impact is, I think, less than it may have initially appeared, especially for scholars with substantive interests in the family. This book is, its title notwithstanding, more about economics and the economic approach to behavior than about the family. In the first sentence of the preface, Becker writes "In this book, I develop an economic or rational choice approach to the family." Lest anyone accuse him of focusing on traditional (i.e., material) economics topics, such as family income, poverty, and labor supply, he immediately emphasizes that those topics are not his focus. "My intent is more ambitious: to analyze marriage, births, divorce, division of labor in households, prestige, and other non-material behavior with the tools and framework developed for material behavior." Indeed, the book includes chapters on many of these issues. One chapter examines the principles of the efficient division of labor in households, three analyze marriage and divorce, three analyze various child-related issues (fertility and intergenerational mobility), and others focus on broader family issues, such as intrafamily resource allocation. His analysis is not, he believes, constrained by time or place. His intention is "to present a comprehensive analysis that is applicable, at least in part, to families in the past as well as the present, in primitive as well as modern societies, and in Eastern as well as Western cultures." His tone is profoundly conservative and utterly skeptical of any constructive role for government programs. There is a clear sense of how much better things were in the old days of a genderbased division of labor and low market-work rates for married women. Indeed, Becker is ready and able to show in Chapter 2 that such a state of affairs was efficient and induced not by market or societal discrimination (although he allows that it might exist) but by small underlying household productivity differences that arise primarily from what he refers to as "complementarities" between caring for young children while carrying another to term. Most family scholars would probably find that an unconvincingly simple explanation for a profound and complex phenomenon. What, then, is the salient contribution of Treatise on the Family? It is not literally the idea that economics could be applied to the nonmarket sector and to family life because Becker had already established that with considerable success and influence. At its core, microeconomics is simple, characterized by a belief in the importance of prices and markets, the role of self-interested or rational behavior, and, somewhat less centrally, the stability of preferences. It was Becker's singular and invaluable contribution to appreciate that the behaviors potentially amenable to the economic approach were not limited to phenomenon with explicit monetary prices and formal markets. Indeed, during the late 1950s and throughout the 1960s, he did undeniably important and pioneering work extending the domain of economics to such topics as labor market discrimination, fertility, crime, human capital, household production, and the allocation of time. Nor is Becker's contribution the detailed analyses themselves. Many of them are, frankly, odd, idiosyncratic, and off-putting. …

A Treatise on the Family

This paper undertakes an assessment of a rapidly growing body of economic research on financial literacy. We start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital. Endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population. Next, we draw on recent surveys to establish how much (or how little) people know and identify the least financially savvy population subgroups. This is followed by an examination of the impact of financial literacy on economic decision-making in the United States and elsewhere. While the literature is still young, conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps. A final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy.

/pdf/the-economic-importance-of-financial-literacy-theory-and-17mb1g4cfb.pdf

The Economic Importance of Financial Literacy: Theory and Evidence

This paper undertakes an assessment of a rapidly growing body of economic research on financial literacy. We start with an overview of theoretical research, which casts financial knowledge as a form of investment in human capital. Endogenizing financial knowledge has important implications for welfare, as well as policies intended to enhance levels of financial knowledge in the larger population. Next, we draw on recent surveys to establish how much (or how little) people know and identify the least financially savvy population subgroups. This is followed by an examination of the impact of financial literacy on economic decision making in the United States and elsewhere. While the literature is still young, conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps. A final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy. (JEL A20, D14, G11, I20, J26)

/pdf/the-economic-importance-of-financial-literacy-theory-and-2yhcozat6n.pdf

The economic importance of financial literacy: theory and evidence

As firms switch from defined-benefit plans to defined-contribution plans, employees bear more responsibility for making decisions about how much to save. The employees who fail to join the plan or who participate at a very low level appear to be saving at less than the predicted life cycle savings rates. Behavioral explanations for this behavior stress bounded rationality and self-control and suggest that at least some of the low-saving households are making a mistake and would welcome aid in making decisions about their saving. In this paper, we propose such a prescriptive savings program, called Save More Tomorrow (hereafter, the SMarT program). The essence of the program is straightforward: people commit in advance to allocating a portion of their future salary increases toward retirement savings. We report evidence on the first three implementations of the SMarT program. Our key findings, from the first implementation, which has

/pdf/save-more-tomorrow-using-behavioral-economics-to-increase-56jv5i78up.pdf

Save More Tomorrow™: Using Behavioral Economics to Increase Employee Saving

In this survey, we review the recent theoretical and empirical literature on household saving and consumption. The discussion is structured around a list of motives for saving and how well the standard theory captures these motives. We show that almost all of the motives for saving that have been suggested in the informal saving literature can be captured in the standard optimizing model. Particular attention is given to recent work on the precautionary motive and its implications for saving and consumption behavior. We also discuss the "behavioral" or "psychological" approach that eschews the use of standard optimization techniques and focuses instead on direct consideration on saving. We provide a section on facts: who save and how much. We then discuss informally the recent decline in the U.S. saving rate and whether the theory is of much use in understanding this and other changes in aggregate saving rates over time. We do not find any convincing explanation for the change in saving rates. We also discuss some analyses of saving behavior over the life-cycle, addressing such questions as whether households save "enough" for retirement and whether the consumption patterns of older households can be rationalized within a simple life cycle model. We also review a great number of studies of the consumption Euler equations. Based on our analysis of the studies cited we conclude that there is still mixed evidence that consumption is excessively sensitive to income. We also examine in depth the recent empirical literature on the precautionary motive. We conclude that although some households do seem to have a significant precautionary motive at some points in their life cycle, this motive is not so strong empirically as some investigators suggest.

/pdf/household-saving-micro-theories-and-micro-facts-3jhgm2jog8.pdf

Household Saving: Micro Theories and Micro Facts

The life cycle model analyzed here constrains most work on the main job to be full-time. Partial retirement entails a wage reduction and frequently a job change. Maximum likelihood estimates of utility function parameters are designed to incorporate information on the age of leaving full-time work and the age of full retirement. The model closely tracks retirement behavior, including peaks in retirement activity at 62 and 65. The paper explores the relation of these peaks to nonlinearities in the budget constraint created by various retirement programs. Policy analyses based on this and on earlier models with simpler structures are compared. THE RETIREMENT CHOICE is one of the more prominent manifestations of life cycle behavior. The decision is the result of an interplay between an individual's preferences and a set of incentives which change in complicated ways as the individual progresses through his or her late 50's and 60's. The purpose of this study is to formulate and estimate a structural model which incorporates in a fundamental way this interplay between lifetime preferences and incentives, and to illustrate how such a model may be used to investigate retirement behavior. A structural model of this type is essential for analyzing potential policy changes which can be expected to affect incentives in varying ways over a number of years in the life cycle. The current study incorporates two structural features which have frequently been omitted from previous studies. First, the model requires that an individual who wishes to reduce work effort below full-time must accept a reduced hourly wage rate in order to do so. This reflects empirical evidence from micro data sets which indicates that around one-third of older individuals engage in part-time work at one time or another and that regardless of whether or not these older workers change jobs to obtain part-time work, they usually take wage cuts as compared to their previous full-time work.2 The fact that an individual is willing to accept a lower wage rate in return for the opportunity to work fewer than full-time hours contains important information about the preferences of the

/pdf/a-structural-retirement-model-58mkctmna9.pdf

A Structural Retirement Model

A structural econometric model of retirement of dual‐career couples is specified and estimated with panel data from the National Longitudinal Survey of Mature Women. A coincidence of spouses retiring together, despite the younger ages of wives, suggests explicit efforts at coordination. The estimates suggest that one reason is a correlation of tastes for leisure. More important, each spouse, and perhaps husbands in particular, values retirement more once their spouse has retired. The opportunity set accounts for peaks in the retirement hazards of each spouse individually but not for peaks in the simultaneous retirement of both spouses.

https://www.jstor.org/stable/10.1086/209968

Retirement in Dual‐Career Families: A Structural Model

Because employer-sponsored group pension plans entail agreements between workers and their employers explicitly linking future payment and employment, they offer an unusual window into long-term employment relationships. This review of recent research on pensions explores how pensions influence employee compensation, retirement, turnover, and other matters central to the determination of labor's price and quantity over time. The authors also outline some unanswered questions and difficult-to-reconcile findings. Because the pension promise involves an explicit and relatively well-documented set of statements regarding future contingent payment and employment, an examination of the design and operation of employersponsored group pension plans can yield important insights into the long-term employment relationship. Specifically, pension research illuminates some important labor market questions in two ways: it offers insight into an important element of compensation in its own right, and it furthers our understanding of labor markets in which long-term

https://www.jstor.org/stable/info/2524975

The role of pensions in the labor market: a survey of the literature

https://www.nber.org/system/files/working_papers/w9183/w9183.pdf

The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth

This paper examines the phenomenon of partial retirement . Topics covered include: (1) the quantitative importance of partial retirement, (2) institutional constraints in addition to mandatory retirement which limit the opportunity to retire partially in the main job, (3) the effect of these constraints on the specification of the relevant structural equations in a life cycle retirement model, (4) the impact of standard explanatory variables on four outcomes -- complete retirement, partial retirement both in and outside the main job, and non-retirement, (5) the importance of partial retirement even for those who do not face mandatory retirement, are not covered by a pension and are healthy, (6) the sensitivity of results based on a dichotomous retirement variable to whether the partially retired are classified as retired or not retired. A number of studies have either treated partial retirement inappropriately or have adopted unrealistic assumptions about the opportunity set facing potential retirees. Our findings call their results into question.

Alan L. Gustman

Papers

A Structural Retirement Model

Retirement in Dual‐Career Families: A Structural Model

The role of pensions in the labor market: a survey of the literature

The Social Security Early Entitlement Age in a Structural Model of Retirement and Wealth

Partial Retirement and the Analysis of Retirement Behavior