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Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs

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  • Annamaria Lusardi
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    Abstract

    Individuals are increasingly in charge of their own financial security after retirement. But how well-equipped are individuals to make saving decisions; do they possess adequate financial literacy, are they informed about the most important components of saving plans, do they even plan for retirement? This paper shows that financial illiteracy is widespread among the U.S. population and particularly acute among specific demographic groups, such as those with low education, women, African-Americans, and Hispanics. Moreover, close to half of older workers do not know which type of pensions they have and the large majority of workers know little about the rules governing Social Security benefits. Notwithstanding the low levels of literacy that many individuals display, very few rely on the help of experts or financial advisors to make saving and investment decisions. Low literacy and lack of information affect the ability to save and to secure a comfortable retirement; ignorance about basic financial concepts can be linked to lack of retirement planning and lack of wealth. Financial education programs can help improve saving and financial decision-making, but much more can be done to improve the effectiveness of these programs.

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    Bibliographic Info

    Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 13824.

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    Date of creation: Feb 2008
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    Publication status: published as “U.S. Household Savings Behavior: The Role of Financial Literacy, Information and Financial Education Programs,” in C. Foote, L Goette, and S. Meier (eds), “ Policymaking Insights from Behavioral Economics ,” Federal Reserve Bank of Boston, 2009, pp. 109-149.
    Handle: RePEc:nbr:nberwo:13824

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    Citations

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    Cited by:
    1. Tullio Jappelli, 2010. "Economic Literacy: An International Comparison," Economic Journal, Royal Economic Society, vol. 120(548), pages F429-F451, November.
    2. Bönte, Werner & Filipiak, Ute, 2012. "Financial literacy, information flows, and caste affiliation: Empirical evidence from India," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3399-3414.
    3. Croy, Gerry & Gerrans, Paul & Speelman, Craig, 2010. "The role and relevance of domain knowledge, perceptions of planning importance, and risk tolerance in predicting savings intentions," Journal of Economic Psychology, Elsevier, vol. 31(6), pages 860-871, December.
    4. Giuseppe Cappelletti & Giovanni Guazzarotti & Pietro Tommasino, 2011. "What determines annuity demand at retirement?," Temi di discussione (Economic working papers) 805, Bank of Italy, Economic Research and International Relations Area.
    5. Jarkko Harju, 2012. "Voluntary pension savings and tax incentives: Evidence from Finland," Working Papers 33, Government Institute for Economic Research Finland (VATT).
    6. Annamaria Lusardi & Olivia S. Mitchell & Vilsa Curto, 2009. "Financial Literacy and Financial Sophistication Among Older Americans," NBER Working Papers 15469, National Bureau of Economic Research, Inc.
    7. Brian Lucey & Michael Daly, 2013. "What Do The Irish Know About Economics," The Institute for International Integration Studies Discussion Paper Series iiisdp432, IIIS.
    8. Webley, Paul & Nyhus, Ellen K., 2013. "Economic socialization, saving and assets in European young adults," Economics of Education Review, Elsevier, vol. 33(C), pages 19-30.
    9. Buehren, Niklas, 2011. "Allocating Cash Savings and the Role of Information: Evidence from a Field Experiment in Uganda," Proceedings of the German Development Economics Conference, Berlin 2011 16, Verein für Socialpolitik, Research Committee Development Economics.
    10. Miller, Margaret & Reichelstein, Julia & Salas, Christian & Zia, Bilal, 2014. "Can you help someone become financially capable ? a meta-analysis of the literature," Policy Research Working Paper Series 6745, The World Bank.
    11. Binswanger, J. & Carman, K.G., 2010. "The Miracle of Compound Interest: Does our Intuition Fail?," Discussion Paper 2010-137, Tilburg University, Center for Economic Research.
    12. Beck, T.H.L. & Brown, M., 2011. "Use of Banking Services in Emerging Markets -Household-Level Evidence (Replaces CentER DP 2010-092)," Discussion Paper 2011-089, Tilburg University, Center for Economic Research.

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