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Financial Literacy and Planning: Implications for Retirement Wellbeing

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  • Annamaria Lusardi
  • Olivia S. Mitchell

Abstract

Relatively little is known about why people fail to plan for retirement and whether planning and information costs might affect retirement saving patterns. This paper reports on a purpose-built survey module on planning and financial literacy for the Health and Retirement Study which measures how people make financial plans, collect the information needed to make these plans, and implement the plans. We show that financial illiteracy is widespread among older Americans, particularly women, minorities, and the least educated. We also find that the financially savvy are more likely to plan and to succeed in their planning, and they rely on formal methods such as retirement calculators, retirement seminars, and financial experts, instead of family/relatives or co-workers. These results have implications for targeted financial education efforts.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17078.

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Date of creation: May 2011
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Publication status: published as “Financial Literacy and Planning: Implications for Retirement Well - being,” joint with Olivia Mitchell , in A. Lusardi and O Mitc hell (eds), “Financia l Literacy. Implications for Retirement Security and the Fina ncial Marketplace,” Oxford University Press , 2011, p p. 17 - 39 .
Handle: RePEc:nbr:nberwo:17078

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  1. Ann Huff Stevens & Sewin Chan, 2005. "What You Don’t Know Can’t Help You: Pension Knowledge and Retirement Decision Making," Working Papers, University of California, Davis, Department of Economics 518, University of California, Davis, Department of Economics.
  2. Esther Dufluo & Emmanuel Saez, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments, The Field Experiments Website 00141, The Field Experiments Website.
  3. Esther Duflo & Emmanuel Saez, 2003. "The Role Of Information And Social Interactions In Retirement Plan Decisions: Evidence From A Randomized Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 118(3), pages 815-842, August.
  4. Giovanni Mastrobuoni, 2007. "Do better–informed workers make better retirement choices? A test based on the Social Security Statement," Carlo Alberto Notebooks, Collegio Carlo Alberto 51, Collegio Carlo Alberto.
  5. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 6(1), pages 21-39, January.
  6. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 34(4), pages 1797-1855, December.
  7. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2006. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 2107, Harvard - Institute of Economic Research.
  8. John Ameriks & Andrew Caplin & John Leahy, 2004. "The Absent-Minded Consumer," NBER Working Papers 10216, National Bureau of Economic Research, Inc.
  9. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  10. Alan L. Gustman & Olivia S. Mitchell & Andrew A. Samwick & Thomas L. Steinmeier, 1997. "Pension and Social Security Wealth in the Health and Retirement Study," NBER Working Papers 5912, National Bureau of Economic Research, Inc.
  11. Douglas D. Bernheim, . "Financial Illiteracy, Education, and Retirement Saving," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 96-7, Wharton School Pension Research Council, University of Pennsylvania.
  12. Steven F. Venti & David A. Wise, 2001. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Chapters, National Bureau of Economic Research, Inc, in: Aging Issues in the United States and Japan, pages 25-64 National Bureau of Economic Research, Inc.
  13. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," CeRP Working Papers 90, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  14. Alan L. Gustman & Thomas L. Steinmeier, 1998. "Effects of Pensions on Saving: Analysis with Data from the Health and Retirement Study," NBER Working Papers 6681, National Bureau of Economic Research, Inc.
  15. James F. Moore & Olivia S. Mitchell, . "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 98-1, Wharton School Pension Research Council, University of Pennsylvania.
  16. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
  17. Olivia S. Mitchell & James Moore & John Phillips, . "Explaining Retirement Saving Shortfalls," Pension Research Council Working Papers, Wharton School Pension Research Council, University of Pennsylvania 98-13, Wharton School Pension Research Council, University of Pennsylvania.
  18. Marianne A. Hilgert & Jeanne M. Hogarth & Sondra G. Beverly, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
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