EBRI Press Release

New 401(k) Participant and Consumer Finance Research Finds Household Spending Spikes Associated With Increased Use of Credit Card Debt and Plan Loans

Sep 14, 2023 2  pages


A new research report published today by the Employee Benefit Research Institute (EBRI) and J.P. Morgan Asset Management found that households with spending “spikes” that lack the income and cash reserves to support spending volatility are likely to increase their credit card debt or take a loan from their 401(k) plan.

The report, “How Financial Factors Outside of a 401(k) Plan Can Impact Retirement Readiness,” provides a unique analysis of 401(k) plan participants’ finances by linking 401(k) plan data with consumer banking data to better understand how 401(k) participants behave when faced with irregular expenses.  Changes in credit card utilization, 401(k) plan contributions and/or 401(k) plan loan use were examined after these participants experienced a significant spending spike.

“As expected, this research found that the lack of income and cash reserves to support spending spikes is likely to result in higher credit card debt. What’s interesting is how having household credit card debit impacts the household’s retirement security, since higher credit card utilization is correlated with lower 401(k) plan contributions and account balances, even when controlling for tenure and income.  As a result, the availability of emergency savings to cover spending spikes is a critical factor in preventing or stalling a cycle of increasing debt that can significantly impact retirement readiness,” explained Craig Copeland, Ph.D., director, Wealth Benefits Research, EBRI.

Revolving consumer credit has grown at 9 percent per year during the study period from 2016-2020.  In the 2023 Retirement Confidence Survey, almost two thirds of workers said their debt is a problem and half of workers said debt is negatively impacting their ability to save for retirement.[i]  This study further validates this sentiment by looking at the relationship between spending spikes, credit card utilization and 401(k) loan usage.

“Findings from our research in partnership with EBRI confirm that emergency savings and debt management are both critical for retirement preparedness,” explained Michael Conrath, Chief Retirement Strategist at J.P. Morgan Asset Management. “Analysis from our Guide to Retirement suggests that for most participants, two to three months of gross income in reserve would cover most spending spikes and act as adequate emergency savings.”

“In addition, the report makes it clear that plan sponsors need to take into account participant behavior and spending volatility when designing their Qualified Default Investment Alternative (QDIA) offering.” said Sharon Carson, Retirement Strategist at J.P. Morgan Asset Management. “The research also highlights the importance of sponsors keeping in mind that ‘leakage’ from plan accounts through 401(k) loans and withdrawals can have outsized effects on retirement readiness.”

To view the complete 12-page report, “How Financial Factors Outside of a 401(k) Plan Can Impact Retirement Readiness,” visit www.ebri.org/spending-spikes.