Retirement Saving’s Big Data Problem

The buzz around Big Data has been met with either utter enthusiasm or sincere confusion. And rightly so. Big data is an ambiguous term that is meant to capture the vast amounts of both structured data (i.e. datasets with identified labels and locations) and unstructured data (i.e. qualitative information often including electronic correspondences, audio recordings, and images). Big Data can potentially help an organization harness large amounts of information and use it to achieve mission in a more efficient way. Though I think, with Big Data, the sky is hardly the limit.

In my view, Big Data does not just concern businesses or agencies, but people too. Retirement is undoubtedly an overlooked Big Data project (it involves structured and unstructured data doesn’t it?) During your lifetime you will have to make a wide array of Big Data decisions when considering your future retirement. Do you invest in stocks? Put money into your Thrift Savings Plan (TSP)? Do you need to save for your spouse or others in your life? There are a myriad of questions to consider when planning your fiscal future, and doing it insufficiently could result in spending your golden years working as opposed to on the beach. If harnessing the power of data is key, are you financially literate enough to do it?

Financial literacy is the ability to understand basic financial concepts and could be essential for retirement planning. In fact, we just launched a recent study that asked feds about their saving habits. Here are some of the questions:

What total percentage of your income do you put toward saving for retirement either in your Thrift Savings Plan (TSP), 401K or in personal savings?

How have you been saving for retirement up until now?

These questions required me to make one imperative assumption: is my audience financially literate enough to answer the questions accurately? According to Annamaria Lusardi, an accountancy scholar at the George Washington University School of Business, maybe not.

In conjunction with the University of Michigan’s Retirement Research Center, Lusardi analyzed the Center’s 2004 Health and Retirement Study (HRS) to assess if Americans have the financial literacy needed to plan for retirement. The results were not inspiring.

Financial literary among baby boomers was measured by asking respondents to demonstrate a basic understanding of percentage calculations, division, and compound interest. Here are the questions (test yourself, answers are at the bottom!):

1. If the chance of getting a disease is 10 percent, how many people out of 1,000 would be expected to get the disease?

2. If 5 people all have the winning number in the lottery and the prize is 2 million dollars, how much will each of them get?

3. Let’s say you have 200 dollars in a savings account. The account earns 10 percent interest per year. How much would you have in the account at the end of two years?

Baby Boomers between the ages of 51 to 56 reported mixed results. 83.5% got the percentage calculation question correct, 55.9% got the lottery division question correct, and only 17.8% indicated the correct answer to the question regarding compound interest. Other calculations in the study show that those who are not financially literate (or who answered the 3 questions incorrectly) are less likely to even plan for retirement, they also tend to accumulate less wealth during their lifetime, and are less likely to participate in the stock market. All of these factors have tremendous implications on income security during retirement.

Big data doesn’t just have the capacity to make your job more efficient, buy your life as well. Retirement planning is fraught with both structured and unstructured data that need to be considered when preparing for your golden years.

What can feds do as a result of these findings and the Big Data challenge?  Before answering that question, ask yourself this: is the problem the lack of understanding of financial information? Or is it about behavior, and planning for retirement? Would mere education courses give feds the tools they need to save? Or should we start treating out lives like a Big Data project that needs organizing?

Answers:

1. 100

2. 400,000

3. 242

Notes from the Research Desk highlights the best practices, salient data and emergent perspectives uncovered by the Government Business Council’s (GBC) team. Each week, Research Manager Dana Grinshpan will share the discoveries most important to federal managers. 

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