Many Americans live paycheck to paycheck, carry revolving credit balances, and have little liquidity to absorb financial shocks. One consequence of this financial vulnerability is that many individuals use a portion of their retirement savings during their working years. For every $1 that flows into 401(k)s and similar accounts, between 30¢ and 40¢ leaks out before retirement (Argento, Bryant, and Sabelhaus 2015). We explore the practical considerations and challenges associated with helping households accumulate liquid savings that can be deployed when urgent pre-retirement needs arise. Automatically enrolling workers into an employer-sponsored "rainy-day" or "emergency" savings account--terms that we use interchangeably in this paper--funded by payroll deduction could be a cost-effective way to achieve this goal. We explore three specific implementation options: (a) after-tax employee 401(k) accounts; (b) deemed Roth IRAs under a 401(k) plan; and (c) depository institution accounts. We evaluate the pros and cons of each approach and conclude that all three approaches merit exploration and field testing.

This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities.

We calculate the socially optimal level of illiquidity in an economy populated by households with taste shocks and present bias (Amador, Werning, and Angeletos 2006). The government chooses mandatory contributions to respective spending/savings accounts, each with a different pre-retirement withdrawal penalty. Penalties collected by the government are redistributed through the tax system. When naive households have heterogeneous present bias, the social optimum is well approximated by a three-account system: (i) a completely liquid account, (ii) a completely illiquid account, and (iii) an account with a ~10% early withdrawal penalty. In some ways this resembles the U.S. system, which includes completely liquid accounts, completely illiquid Social Security and 401(k)/IRA accounts with a 10% early withdrawal penalty. The social optimum is also well approximated by an even simpler two-account system -- (i) a completely liquid account and (ii) a completely illiquid account -- which is the most common retirement system in the world today.

Home-delivered prescriptions have no delivery charge and lower copayments than prescriptions picked up at a pharmacy. Nevertheless, when home delivery is offered on an opt-in basis, the take-up rate is only 6%. We study a program that makes active choice of either home delivery or pharmacy pick-up a requirement for insurance eligibility. The program introduces an implicit default for those who don't make an active choice: pharmacy pick-up without insurance subsidies. Under this program, 42% of eligible employees actively choose home delivery, 39% actively choose pharmacy pick-up, and 19% make no active choice and are assigned the implicit default. Individuals who financially benefit most from home delivery are more likely to choose it. Those who benefit least from insurance subsidies are more likely to make no active choice and lose those subsidies. The implicit default incentivizes people to make an active choice, thereby playing a key role in choice architecture.

For the subpopulation of unionized non-participating employees, we find that peer information reduced plan enrollment rates. However, for the subpopulation of non-unionized non-participants, peer information increased enrollment rates. In the third essay, I study the investment strategies of oil and gas firms operating in the Gulf of Mexico. I compare the drilling decisions of teams of firms that jointly develop tracts to the drilling decisions of solo firms that individually develop tracts. My empirical strategy addresses the endogenous matching of firms to tracts by focusing on cases where teams narrowly outbid solo firms or solo firms narrowly outbid teams in tract auctions. The wells drilled by teams are more profitable than those drilled by solo firms, and teams engage in less exploratory drilling than solo firms.