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Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands

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Author Info

  • Rob Alessie

    ()
    (University of Groningen)

  • Maarten van Rooij

    ()
    (Netherlands Central Bank)

  • Annamaria Lusardi

    ()
    (Dartmouth College)

Abstract

We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees’ expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variation for financial conditions and financial knowledge of relatives, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.

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Bibliographic Info

Paper provided by Center for Research on Pensions and Welfare Policies, Turin (Italy) in its series CeRP Working Papers with number 110.

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Length: 39 pages
Date of creation: Mar 2011
Date of revision:
Handle: RePEc:crp:wpaper:110

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Keywords: Financial Sophistication; Retirement Planning; Retirement Expectations;

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References

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  1. Maarten vanRooij & Annamaria Lusardi & Rob Alessie, 2007. "Financial Literacy and Stock Market Participation," Working Papers wp162, University of Michigan, Michigan Retirement Research Center.
  2. Maarten van Rooij & Clemens Kool & Henri�tte Prast, 2005. "Risk-return preferences in the pension domain: are people able to choose?," DNB Working Papers 025, Netherlands Central Bank, Research Department.
  3. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
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Cited by:
  1. Xu, Lisa & Zia, Bilal, 2012. "Financial literacy around the world : an overview of the evidence with practical suggestions for the way forward," Policy Research Working Paper Series 6107, The World Bank.

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