Saumitra Jha On Using Finance To Build Social Cohesion
Saumitra Jha is Associate Professor of Political Economy at Stanford Graduate School of Business, with courtesy appointments in Economics and Political Science at Stanford University. He is a Senior Fellow at the Freeman Spogli Institute for International Studies and the Stanford Institute for Economic Policy Research, a Faculty Fellow at the Center for Advanced Study in the Behavioral Sciences, and convenor of the Stanford Conflict and Polarization Lab.
By Aiden Singh, February 10, 2026
Introduction
Professor Saumitra Jha is an Associate Professor of Political Economy at Stanford Graduate School of Business.
His research examines how societies design institutions, financial systems, and organizations to manage political conflict, reduce violence, and foster cooperation across deep social divides.
Drawing on historical cases and contemporary experimental evidence, Professor Jha’s work explores how financial innovation can align incentives across rival groups, turning former combatants, ethnic factions, and political opponents into stakeholders in peace. His research on this subject spans seventeenth-century England, the early United States, Meiji Japan, and modern settings including Israel-Palestine, Brexit-era Britain, Mexico, and the United States.
In our conversation, Professor Jha and I discuss how joint-stock companies shaped political conflict during the English Civil War, how Alexander Hamilton used public debt and banking to bind the early American republic together, and how finance was used to help alleviate caste conflict in nineteenth-century Japan.
We also explore his experimental research on financial participation, trust, and political cooperation, and what these findings suggest for addressing polarization, ethnic conflict, and collective action problems today.
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Finance and Political Conflict in Revolutionary England
Aiden Singh: One of the areas your research examines is the social and political effects of exposure to financial markets.
This is not necessarily the kind of material that one often encounters when studying finance at university, where the focus tends to be on topics such as asset valuation and formal models of financial markets.
In contrast, your work considers what social consequences of being exposed to financial markets. And you examine this question across different time periods and geographical regions.
One of the cases you study is 17th century revolutionary Britain, and the ways in which the ability to own shares in foreign companies shaped political attitudes.
How did financial innovation influence the conflict between the English Parliament and the Crown during this period?
Saumitra Jha: I agree entirely with what you just said. Often, when people think about financial markets, they do so either in a very abstract way, devoid of social context, or instead in a very culturally loaded way: you often hear ideas Main Street pitted against Wall Street, and so on and so forth.
What is interesting to me, as someone interested in economic development, both historically and today, is how many times common exposure to financial markets has actually allowed people to develop new interests or to organize in new ways. That, in turn, allowed them to change their views in ways that brought people together.
This may be focused on 17th century England, but these are also common questions that we face today. How do we overcome political polarization? How do we deal with post conflict environments?
I think that political economy problem solvers of the past actually saw finance as a way of bringing people together, in ways that decreased the social distinctions that used to exist between them, while also giving them common interests.
England is particularly interesting. This is partly because I am British, which is helpful. The other part is that the English Revolution, or the British Revolutions of the 17th century, are often seen as pivotal moments not just in British history, but in world history. Marx famously called it the first bourgeois revolution. There is also work, such as that by North and Weingast, that talks about credible commitments emerging from this period. Others talk about the rise of the West, and so on and so forth.
This raises a broader question about why these events happened when they did, who was involved, and what the consequences were.
One thing I was particularly interested in was how, just before the English Civil War, there was the development of a new set of opportunities in the form of joint stock companies. These emerged in England for the first time as a way to reach overseas markets - particularly the spice trade - and initially they were designed to share risk.
Before this, overseas trade was conducted by merchants who already knew how to go abroad. Much of this trade involved exporting wool to the Netherlands and importing goods such as wine from various places. At the same time, you had landowners and members of the gentry who otherwise had little interest in overseas trade beyond raising sheep. Joint stock companies suddenly gave these groups the opportunity to invest through the purchase of shares.
This was initially done to share risk, but what is interesting is that it also appears to have had political effects. By sharing risk in common with merchants who were trading overseas, these investors began to adopt the merchants’ political positions as well. They became more supportive of overseas property rights, which were under contention at the time.
Queen Elizabeth I and the Stuart kings - James I and Charles I - are also part of this story. Overseas customs revenue made the Crown increasingly wealthy, to the point that it could, in the early 17th century, live without Parliament.
There is a body of research showing that domestically, wealth holders were relatively safe and secure in their property. Overseas, however, these new opportunities were different. They were subject to significant Crown control, and people who held shares had joint exposure to those risks.
Of course, it is very hard to measure the causal effect of holding shares, because there are many endogenous processes at work. People choose to hold shares, and they choose when to invest, for many reasons. What I use instead is the fact that, at the time, one had to be 21 years old to be considered an adult. Attaining adulthood meant that one could write legal contracts, and shares were legal contracts. If someone happened to be turning 21 at the time of an initial public offering for one of these joint stock companies, that person was much more likely to invest in those shares. Later on, if that individual entered Parliament, they were much more likely to rebel against the king when he attempted to reassert his authority over the kingdom, particularly over these contested rights.
What becomes interesting, and what is also relevant today, is that this arrangement involved sharing the risks of human capital. Merchants already knew how to trade overseas, and they already had these interests. Joint-stock companies allowed people who otherwise would not have been able to trade overseas to share in the risks associated with the merchants’ human capital, creating a common set of interests.
These individuals were not only more likely to push for parliamentary control of government during the English Civil War, but after the war, violent political conflict in England diminished remarkably. There were some attempts to turn back the clock. I grew up in Scotland, where Bonnie Prince Charlie remains a prominent historical figure, and there were episodes like 1745 where efforts were made to reverse these changes. Nevertheless, violent political conflict declined much earlier in England than in other consolidated Western European nation states, such as France, which experienced civil war in the 1790s, or Spain in the 1930s.
England solved the problem of domestic political conflict relatively early, largely in the aftermath of the English Civil War. Part of my interpretation, which is ongoing research, is that these joint-stock companies initially allowed wealth holders to develop common interests in favor of parliamentary control of government. Subsequently, secondary markets emerged that enabled both losers and winners to invest jointly in national projects of war and commerce, such as the Bank of England, and similar institutions.
About one hundred years later, Napoleon famously derided the English as a nation of shopkeepers. In some ways, he was not wrong. Social and financial distinctions that remained much more accentuated in France had diminished in England. Although class distinctions persisted, as depicted in Edwardian literature and the novels of Jane Austen, social mobility was real.
Even if someone involved in finance might not be considered a gentleman, ownership of a manor could mean that one’s children would be considered part of the gentry. This kind of social mobility, and this kind of joint investment across different types of assets, emerged during this period in England in a way that helped manage the internal conflicts that had previously existed.
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Alexander Hamilton and the Financial Foundations of the United States
Aiden Singh: Let’s turn our attention across the Atlantic to the early days of the United States.
The big name here is Alexander Hamilton, who built much of the early financial system of the United States. And he used financial innovation to generate a constituency for some of the reforms he wanted to push through.
Can you share with our audience the story of how he did this and what some of the lasting consequences were?
Saumitra Jha: Alexander Hamilton is a personal hero of mine. I think he is brilliant, and not just in one dimension. He was a striver who came from very poor circumstances. Importantly, he studied history in order to understand how to design the American financial system. In doing so, he could see much further down the game tree than many of the other brilliant figures of the time, such as Thomas Jefferson.
There is a famous quote from Jefferson in which he calls the deal he made with Hamilton the biggest mistake of his life. If you have seen the musical, you will recognize the story, but there was a major debate about two issues. One concerned the assumption of state debts that were owed to Revolutionary War veterans. The second concerned where to locate the capital.
There was significant disagreement over both questions, and we largely have Jefferson’s account because he brokered a dinner at his house. At that dinner, Hamilton struck a deal with Madison and Jefferson. The capital of the United States would be placed along the Potomac, rather than in places that might have seemed more sensible over time, such as New York or Philadelphia. In exchange, Virginia and other states that had already paid off their Revolutionary War veterans would be compensated through the federal government’s assumption of state debts.
Jefferson did not fully grasp the implications of this arrangement at the time. In 1793, he later claimed that “while the government was still in its most infant state, the Assumption Bill enabled Hamilton to strengthen his position by corrupt services to many, allowing him afterward to carry his Bank Scheme,” meaning the creation of the first Bank of the United States. Jefferson wrote that “every measure Hamilton proposed went forward in defiance of all opposition, and that this was the principal ground on which there was reared up a speculating phalanx, both in and out of Congress, which has since been able to give laws and change the political complexion of the United States.”
Jefferson clearly understood that Hamilton’s creation of the first bank, combined with the Assumption Bill, generated a common interest among Revolutionary War veterans, speculators, and members of Congress. These groups then supported the Bank Bill, which effectively financialized the United States much faster than had occurred elsewhere. What took roughly a century in England happened in about 20 years in the United States.
The reason was that the first bank was a federal bank, but it was allowed to create branches in all the states. It was the only bank that could do so. This led states to engage in competitive chartering, as they sought to create their own banks and their own joint-stock companies. As a result, many more joint-stock companies were created in the United States during the 1790s than had existed previously, and even more than appeared later for some time.
This process was sufficient to create patterns of investment in which people in Pennsylvania held investments in Virginia, people in New York invested elsewhere, and capital flowed across the country in new and novel ways. Once this happened, it became very difficult to undo. Jefferson referred to this group as the “speculating phalanx.” In contrast, his vision of a republic of rural landholders, with small farmers tending their land, became increasingly difficult to sustain in an environment characterized by widespread investment.
Two things stand out as particularly important. First, the system was hard to reverse because it created a durable constituency.
Second, it generated a great deal of cross-regional investment glue within the country, which arguably helped the United States survive its early years. This was a period when the commander of the United States Army turned out to be a Spanish spy, when the Allen brothers in Vermont were contemplating secession, when New England was considering secession, and when people in the Tennessee Valley were also thinking about leaving the Union. Many people were considering departure from the United States, and these financial linkages played a role in holding the country together.
Jefferson continued to complain about this system even 25 years later. In 1818, he wrote that “the Assumption was passed and 20 million of stock, divided among the favored States, and thrown in as pabulum to the stock jumping herd.” This, he argued, “added to the number of votaries to the Treasury, and made its Chief (Hamilton) the master of every vote in the Legislature.”
Even after Jefferson himself had served two terms as president, he still saw this system as something that was extremely difficult to dismantle.
These design elements are also important. In order to buy shares in the First Bank, 80 percent had to be paid through bonds that were owed to Revolutionary War veterans, and 20 percent had to be paid in specie, such as gold or silver. This structure encouraged broad participation from groups that otherwise might not have invested in the Bank.
It also appears that Japan later adopted a similar approach in an important way, which seems to have reduced ethnic conflict there as well.
Aiden Singh: The other benefit to Hamilton of requiring the purchase of scrips in the Bank of the United States to be paid for 80 percent in federal United States government debt was that it created demand for the newly issued debt that he had worked hard to put into circulation.
It created a class of people with a direct interest in the system and it effectively forced them to buy the asset that he wanted them to buy.
Saumitra Jha: Yes. The national debt becomes a unifying force because people do not want to threaten the state that backs their bonds. Nowadays, we tend to think of debt in a negative way, partly because we carry a strong household intuition that debt is something to be avoided. However, debt can also have a strong unifying political power.
Hamilton recognized this, and the British recognized it as well. With the Bank of England, consols became a major form of investment and a way of tying private interests to the projects of the state.
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Social Transformation Through Finance in Meiji Japan
Aiden Singh: You alluded earlier to Japan. You’ve written about how Japanese administrators in the 19th century used financial innovation to reduce opposition to a series of economic reforms that were largely resisted by the samurai class. Could you set the scene for us and explain how financial innovation played a role in this process?
Saumitra Jha: I find the Japanese case endlessly fascinating, and we are still doing research on it. Coming from a South Asian background, it is especially striking because Japan, in 1868, had a more entrenched caste system than India. About 5 percent of the population, roughly 1.8 million people, belonged to the samurai caste. This was a highly endogenous group that married only within itself. The samurai held a monopoly over administrative positions and the right to bear arms.
They also had very strong cultural distinctions. They were the only group permitted to wear a top knot and to carry two swords. Samurai could legally execute someone for disrespecting them. While this did not occur frequently, in part because people understood not to disrespect samurai, it illustrates the extent of their privileges and high social status.
They stood to lose a great deal when the black ships of the United States Navy arrived and forcibly opened Japan. Japan quickly discovered how far behind it was technologically. This led to the Boshin War, fought to restore the emperor to the throne. Importantly, this conflict was largely led by the samurai themselves. They were remilitarized in order to fight this war.
This raises a central question. How do you modernize a state when you have an entrenched, militarized political group? You have a society that is highly fractionalized, with a strong caste component. For those of us who study economic development, this is generally not a good recipe for growth, and it suggests a number of obstacles that are very difficult to overcome.
Yet Japan becomes the first non-European country to industrialize. That makes it worth thinking carefully about how this happened.
Part of the story, in my view, is that Japan solved this political problem in a way similar to Britain and the United States: it experienced a financial revolution that preceded economic development.
In the cases of both the United States and Japan, this financial revolution was arguably designed to reduce political conflict. The Meiji reformers, including figures such as Ōkuma Shigenobu and Matsukata Masayoshi, both of whom were Finance Ministers that later served as Prime Ministers, were themselves samurai. They studied banking systems around the world and confronted a problem very similar to the one faced by the Americans.
Japan owed many debts. Every samurai was entitled to a stipend measured in koku, which represented the number of bushels of rice they were owed. One koku was enough to support a person for a year, and these entitlements could range from a handful of koku to thousands. These obligations were analogous to Revolutionary War debt in the United States, and they represented a substantial share of the state budget.
At the same time, the government was dismantling the former domains of the daimyo and assuming their debts. In doing so, it also assumed these obligations to the samurai. The state could not realistically afford to maintain these payments while modernizing.
Following the American model, the government first attempted to convert these obligations into bonds. Initially, this was done on a voluntary basis, with samurai taking a haircut on their claims. However, many resisted. These were people who had traditionally been warriors and administrators - not investors. And bonds were an unfamiliar financial instrument. Their skepticism was very understandable.
Eventually, the conversion was made compulsory, which led to unrest. People were accustomed to receiving rice, and suddenly they were given pieces of paper promising a yield. This sparked rebellions, including the Satsuma Rebellion, which is loosely immortalized in Tom Cruise’s The Last Samurai. In reality, it was a large-scale civil conflict that absorbed a significant share of the Japanese budget and posed a genuine threat to the state.
While abolishing the cultural distinctions that the samurai valued, such as hairstyles and exclusive surnames, and while introducing conscription to end their monopoly over violence, the government also adjusted its financial strategy. As in the American case, it allowed samurai bonds to be used to capitalize banks, specifically national bank branches.
Eighty percent of the capitalization had to come from samurai bonds, and 20 percent had to come in specie, such as gold or silver, from non-samurai. These institutions therefore became cross-caste banks. They spread across the country, including into places that had never had banks before, particularly castle towns where samurai had traditionally lived.
These towns might otherwise have disappeared economically once their political dominance was removed. Instead, they gained banks, survived, and became integrated into a national commercial economy. Barriers to internal commerce were reduced, and local economies adapted rather than collapsing.
What is particularly interesting is that this system was progressive. Poorer samurai received relatively more in bonds than wealthier ones. They became invested in local silk merchants, cotton merchants, and other enterprises. Their incentives changed as local industries prospered.
So in Japan, rather than relying on repression to combat attempts to reverse political change, the state used bonds and banks. In some cases, repression occurred, but broadly speaking, former elites were transformed into investors.
At the top level, the government also created a large bank for the former daimyo and nobility. This institution was the largest bank in the country. These elites had the strongest incentive to secede financially from the rest of Japan, and there were already secessionist pressures. Instead, the bank was permitted to invest in railways and to finance the war against the Satsuma Rebellion.
These investments would pay off only if there was peace and national integration, rather than fragmentation. In this way, the banking system helped address both the threat of secession and the threat of local violence.
A century later, Japan was no longer a caste society. While vestiges remained, social distinctions had diminished significantly. Cross-group banks emerged as privileges were removed, and former samurai became bankers working alongside merchants. As economic activities changed, so did patterns of interaction and common investment.
This has important modern implications. We still live in a world where ethnic conflict is common. Some countries, such as Malaysia and South Africa, have implemented ethnic-based fiscal policies intended to reduce conflict. These may reduce violence in the short term, though the counterfactual is difficult to assess. However, they also tend to reinforce ethnic distinctions and make them more politically salient.
The Japanese approach was different. Rather than fixing identities, it created a way to share risks associated with past identities. People could not sell being samurai, but they could share the economic risks tied to that identity. This helped create common interests in peace and gradually eroded social distinctions.
There is a great deal to learn from this. Just as Hamilton learned from historical precedents, these kinds of approaches may be relevant today, not only in contexts of ethnic conflict, but also in situations where societies face shared problems that require collective solutions.
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Financial Participation and Preferences for Peace
Aiden Singh: Let’s turn to some of the experimental work you’ve done. Along with a colleague, you designed an experiment to evaluate how holding a portfolio of financial assets influences preferences for peace in areas affected by ethnic conflict.
How was this experiment structured and what did you find?
Saumitra Jha: Much of this work was conducted with my coauthor, Moses Shayo, who was at the Hebrew University of Jerusalem. We were interested in whether ideas drawn from historical cases could be applied to some of the most contentious political issues of the present, including the conflict between Israel and Palestine. We also conducted an experiment around the Brexit referendum, as well as a more recent experiment focused on climate action in the United States.
The basic idea across these studies was to examine whether providing individuals with shared financial exposure allows them to learn the value of joint assets and to invest in outcomes that benefit from peace, integration, or participation in broader economic systems. These included integration within the European Union and participation in the green transition, where the costs of action are immediate but the social gains are substantial, particularly if mitigation occurs early.
More specifically, we examined whether this form of shared exposure could empower individuals by improving financial literacy, enhancing understanding of risk diversification, and highlighting the gains from having a shared stake in common outcomes. We also studied whether this learning process could change attitudes toward political trade-offs, such as the societal costs of conflict versus peace, the economic benefits of European Union membership versus sovereignty driven passions in the Brexit context, and the costs and benefits associated with climate mitigation.
What we found was that providing people with the opportunity to learn through direct, experiential engagement with financial markets, typically through allocations of fifty to one hundred dollars’ worth of shares, was sufficient to improve financial literacy. This effect was particularly strong among women.
In the Israel and Palestine context, it increased support for the peace process.
In the Brexit experiment, it led participants to follow financial news more closely and increased support for remaining in the European Union, especially when individuals received shares tied to the United Kingdom or the European Union, which were complementary to that outcome.
In the United States, the intervention increased support for climate action across the political spectrum and made participants more willing to donate to climate related causes.
Across all of these cases, the interventions were empowering. Participants became more financially literate and followed financial news more closely.
In the U.S. case, this appeared to come at the expense of consuming news primarily through social media or outlets such as Fox News, which often frame climate change quite differently from financial news sources that tend to engage more directly with market risks and climate-related economic questions.
I think we are at a particularly exciting moment. There is widespread discussion about the democratization of finance, and much of this has already occurred. People can now invest more cheaply and more easily than ever before, largely due to advances in technology and the emergence of new financial platforms. At the same time, there is a potential downside, namely the casino-like treatment of financial markets, which can lead people to draw the wrong conclusions and fail to learn in meaningful ways.
From a policy perspective, what we see as crucial is the need to help people learn through markets by providing guidelines and guardrails. This includes making participation simple and helping individuals understand risk diversification. Rather than encouraging speculative behavior, these approaches can help people gain awareness of the economic and political economic dimensions of major policy challenges. In doing so, they can help build broad coalitions in support of outcomes that serve the common good.
What I find particularly appealing about this approach is that it is non-paternalistic. It does not tell people what to think. Instead, it helps them learn and draw their own conclusions. That learning turns out to be quite durable, both with respect to financial concepts and to understanding how public policies affect the economy and who stands to gain from economic outcomes. No political party has a monopoly on the economy.
If the question is about policy implications, I believe that creating scalable opportunities of this kind can allow people to co-invest in the common good, share in the benefits that accrue from it, and become better equipped to evaluate competing narratives. Some of these narratives may sound appealing, but they do not always serve the broader public interest.
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Financial Participation and Generalized Trust
Aiden Singh: You’ve done related work on how exposure to financial markets influences individuals’ generalized trust. How do you define generalized trust in this context, and what did you find regarding the relationship between exposure to financial markets and generalized trust?
Saumitra Jha: This work is part of the same study conducted in Israel, with a follow-up study in Mexico as well.
What we found was that random assignment to invest in these shares led participants to invest in companies where an anonymous other was effectively looking after their interests in a way that could benefit them.
Even in contexts with relatively low baseline levels of generalized trust, we observed meaningful effects.
In our case, we operationalized generalized trust using the World Values Survey question, which asks respondents a simple yes or no question: whether, in general, most people can be trusted.
In Israel, at baseline, approximately 25 percent of respondents answered yes.
It is often assumed that this measure of generalized trust reflects deep, fixed parameters of society. Indeed, there is substantial evidence showing that trust encourages participation in financial markets.
What we were interested in was whether experiential learning in financial markets could have a reciprocal effect on trust itself. That is exactly what we found. The act of investing and thinking about how the common good can generate shared benefits, and how others may be acting in ways that protect one’s interests, increased generalized trust. This effect was particularly pronounced among political partisans in the Israeli context, who became more willing to trust others more broadly than they had been previously.
We observed similar results in Mexico. There, we examined a setting in which trust had been undermined by corruption at the very top of the political system, which we refer to as “apex corruption”.
We found, first, that apex corruption significantly undermines faith in democracy, both in our randomized controlled trial and in event study analyses across Latin America.
Second, we found that some of this erosion of trust can be offset through these common investment approaches, which help rebuild confidence and generalized trust even in challenging political environments.
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Policy Lessons from Financial Participation
Aiden Singh: Drawing on this body of research, which spans historical analysis, multiple geographic contexts, and contemporary experimental work in places such as Israel and Mexico, you have examined how exposure to financial markets shapes attitudes toward peace, political cooperation, and generalized trust.
Given these findings, suppose a president, prime minister, or senior policy-maker were to ask you the following question: based on everything you have learned, what should we be doing? What are the core policy lessons or practical takeaways that emerge from this research?
How would you respond?
Saumitra Jha: I would highlight two broad policy lessons.
First, experiential learning through financial participation is a highly promising way to improve financial literacy. A large body of work, pioneered by my colleague Annamaria Lusardi, shows that financial literacy is strongly associated with improved individual outcomes across a wide range of dimensions. Yet financial literacy is remarkably low, even in countries with deep, well-developed financial markets. Further, it is often very costly and challenging to get adults into a classroom to these concepts through traditional methods.
What our work suggests is that small-scale, carefully designed opportunities to learn through direct participation—learning by doing—can be genuinely empowering. Modest exposure to financial assets, with appropriate guardrails, helps people understand risk, diversification, and long-term thinking in a way that classroom instruction often does not. In and of itself, that is a meaningful policy objective.
Second, this type of exposure appears to generate what I would call a social dividend. Financial markets are often perceived as intimidating or zero-sum, spaces where one person’s gain necessarily comes at another’s loss. While there are certainly elements of that dynamic, especially where information asymmetries exist, much of long-term investing, particularly in broad, diversified assets, creates shared gains that depend on collective economic performance.
When people participate, even at a very small scale, they may begin to internalize the idea that they benefit when the broader system functions well. This reinforces the intuition that “we are in this together,” whether the issue is peace, political integration, or long-term challenges like climate change.
Importantly, the evidence suggests that passive mechanisms alone such as default enrollment in retirement accounts may increase savings but do little to build financial understanding. [1] In contrast, environments that encourage light but active engagement, without overwhelming people, can be far more effective at fostering durable learning.
From a policy perspective, this combination is powerful. These approaches can simultaneously expand financial inclusion, build individual capability, and foster a sense of shared economic interest across political and social divides. For that reason, they are likely to resonate across the political spectrum: they are empowering rather than paternalistic, and they bring new participants into the financial system rather than simply redistributing existing benefits.
In that sense, there is a historical parallel to figures like Alexander Hamilton, who understood that financial architecture could serve not only economic goals but also political and social ones. The opportunity today is to apply those lessons using modern tools and technologies, in ways that are scalable, inclusive, and responsive to contemporary challenges.
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Footnotes
[1] See here to learn more about behavioral economics based approaches that use default enrolment in retirement accounts to increase savings.
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Editing by Harpreet Chohan.