Spotlight On Team Scientist Olivia Mitchell
Dr. Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor, as well as Professor of Insurance/Risk Management and Business Economics/Policy; Executive Director of the Pension Research Council; and Director of the Boettner Center on Pensions and Retirement Research; all at the Wharton School of the University of Pennsylvania.
BCFG: Much of your research is on retirement savings. How has the COVID-19 pandemic affected people’s retirement savings decisions?
Olivia Mitchell: We explored the initial impact of the pandemic on the economic wellbeing of Americans age 45-75. To assess how this group was affected by COVID-19, we evaluated their financial fragility, by which we mean the capacity to meet an unexpected mid-size expense within a month’s time. In addition, we examined the roles played by financial literacy, income and shocks to income, and other factors related to financial fragility. In our survey, 18.9% of respondents reported themselves to be financially fragile, indicating that even with the promise of substantial stimulus payments, about one in five older respondents reported they could not handle a mid-size unexpected expense.
BCFG: Were there differences across demographic groups?
Mitchell: Interestingly, younger respondents under age 60 were more fragile than older ones, while the oldest group (age 70+) was the least financially fragile. This is likely because the oldest group depends more heavily on Social Security income and hence is less susceptible to earnings and unemployment risk. Women were 10 percentage points more likely to report themselves as fragile (25.8%) compared to men (15.6%), while African Americans were 15 percentage points and Hispanics 10 percentage points more likely to be fragile than Whites. It is also interesting to note that self-reported financial fragility was inversely related to financial literacy, suggesting that financial literacy could help people better prepare for unexpected expenses.
BCFG: You recently did another study on financial knowledge and financial well-being among American women. What did you learn?
Mitchell: We found that financial knowledge is quite low among White women, with only 21% able to answer all three very basic financial literacy questions we posed. Black and Hispanic women scored even lower, with only 9% of Black and 13% of Hispanic women deemed financially literate. These low scores were in part attributable to many “do not know” responses to the financial knowledge questions. We believe that women often lack confidence in their answers, and it could also indicate that they were aware of what they did not know. Awareness of their lack of knowledge could spur participation in financial education programs and knowledge acquisition.
On average, financial well-being (FWB) scores were quite close for Black, Hispanic, and White women yet the factors contributing to these outcomes were not the same.
BCFG: How so? What differed across these demographic groups?
Mitchell: Earning a perfect score on the financial literacy questions was strongly positively related to greater FWB for White and Hispanic women, yet for Black women it was negative. Interestingly, all three groups of women reported being offered financial education at similar rates: 24% of Whites, 28% of Blacks, and 27% of Hispanics, and conditional on having been offered it, about three-quarters of each group participated. Nevertheless, the resulting financial literacy differences indicate that this education did not improve all groups’ FWB equally.
We also learned that, for White women, unemployment was negatively associated with FWB, yet it was not significant for Black or Hispanic women.
BCFG: What do you think explains this?
Mitchell: One possible explanation is that having a job has less of a positive effect on FWB for Black and Hispanic women. That is, even when they are working, Black and Hispanic people have less access to employer-sponsored benefits including healthcare coverage and paid time off. Family structure also has different impacts on Black, Hispanic, and White women. For instance, Black and Hispanic women were more likely to have financially-dependent children, yet this did not strongly contribute to lower well-being. By contrast, though White women were less likely to have financially-dependent children, when they did, the children contributed to a larger negative impact on mothers’ FWB. This might arise because some parents will limit their own consumption to save for their children’s education, while in other cultures, parents may instead expect that children will provide for them in retirement. The negative association between financially-dependent children and FWB for White women suggests that this group is more heavily influenced by the first pathway. The lack of significant correlation between financially dependent children and financial well-being for Black and Hispanic women suggests they tend to be more influenced by the second pathway.
BCFG: What applications of your recent research are you most excited about?
Mitchell: Our results show that a “one size fits all” approach is unlikely to address financial well-being deficits across the board, in view of the very different patterns we have uncovered. Instead, targeted programs are likely to better serve people who differ in terms of financial sophistication. Specifically, financial education programs must direct more attention to the specific needs of Black and Hispanic women in terms of their financial well-being. For example, a financial education curriculum can inform participants about the costs associated with alternative financial services or credit cards, but it will succeed better if it acknowledges the particular constraints facing Black and Hispanic women, such as access to lower-cost credit. Programs could be designed with the knowledge that Black and Hispanic women may have economic needs and perspectives about personal finance that differ from those of White women.
*This interview has been edited for clarity and length.
Learn more about Olivia's research here.