Financial Literacy and Private Old-age Provision in Germany
AbstractThe German population has good financial knowledge measured on the basis of three financial literacy questions. Around 85 % of the individuals comprehend the functioning of interest and inflation. And 60 % of the individuals understand the relationship of risk and diversification. Overall around 52 % of the individuals give correct answers to all three considered ques-tions of financial literacy. Bi-variate and multivariate analyses of the relation between giving three correct answers and socio-demographic characteristics reveal that higher wealth is asso-ciated with higher levels of financial literacy. Moreover, financial literacy relates to higher levels of income and education. There is a significant difference between men and women to give three correct answers. Individuals in East and West, are equally literate, when controlling for differences in income, wealth and education. A positive correlation of financial literacy and financial decision making is identified: more literate households are more likely to save privately for their old-age and at the same time households saving privately for their old-age acquire financial knowledge to improve their investment decisions. Interestingly, the possession of a state subsidised Riester contract is related to lower levels of financial literacy than the possession of other non-subsidised forms of private old-age provision. This indicates that Riester subsidies to some extent successfully encourage individuals with lower financial knowledge to save for old-age. Nevertheless, individuals in the lowest income quintile still have very low levels of private coverage despite the high subsidies. At the same time they show the lowest levels of financial literacy.
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Bibliographic InfoPaper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 09192.
Date of creation: 15 Dec 2009
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Find related papers by JEL classification:
- D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
This paper has been announced in the following NEP Reports:
- NEP-AGE-2010-07-24 (Economics of Ageing)
- NEP-ALL-2010-07-24 (All new papers)
- NEP-EUR-2010-07-24 (Microeconomic European Issues)
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- Coppola, Michela & Gasche, Martin, 2011. "Die Riester-Förderung – das unbekannte Wesen," MEA discussion paper series 11244, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
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