Optimal Financial Literacy and Saving for Retirement
AbstractRecent studies show that financial literacy is strongly positively related to household wealth, but there is also substantial cross-sectional variation in both financial literacy and wealth levels. To explore these patterns, the authors develop a calibrated stochastic life cycle model which features endogeneous financial literacy accumulation. Their model generates substantial wealth inequality, over and above what standard lifecycle models produce. This is due to the fact that higher earners typically have more hump-shaped labor income profiles and lower retirement benefits which, when interacted with the precautionary saving motive, boosts their need for private wealth accumulation and thus financial literacy. They show that the fraction of the population which is rationally "financially ignorant" depends on the level of labor income uncertainty as well as the generosity of the retirement system.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by RAND Corporation Publications Department in its series Working Papers with number 905.
Length: 41 pages
Date of creation: Sep 2011
Date of revision:
Contact details of provider:
Postal: 1776 Main Street, P.O. Box 2138, Santa Monica, California 90407-2138
Web page: http://www.rand.org/pubs/
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-AGE-2012-04-03 (Economics of Ageing)
- NEP-ALL-2012-04-03 (All new papers)
- NEP-DGE-2012-04-03 (Dynamic General Equilibrium)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Imai, Kosuke & van Dyk, David A., 2005. "A Bayesian analysis of the multinomial probit model using marginal data augmentation," Journal of Econometrics, Elsevier, vol. 124(2), pages 311-334, February.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:CitEc Project, subscribe to its RSS feed for this item.
- Thomas Lalime & Pierre-Carl Michaud, 2012.
"Littératie financière et préparation à la retraite au Québec et dans le reste du Canada,"
Cahiers de recherche
- Pierre-Carl Michaud & Thomas Lalime, 2012. "Littératie financière et préparation à la retraite au Québec et dans le reste du Canada," CIRANO Working Papers 2012s-35, CIRANO.
- Caliendo, Frank N. & Findley, T. Scott, 2013. "Time inconsistency and retirement planning," Economics Letters, Elsevier, vol. 121(1), pages 30-34.
- Annamaria Lusardi, 2011. "Americans' Financial Capability," NBER Working Papers 17103, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Benson Wong).
If references are entirely missing, you can add them using this form.