Survival and Financial Literacy in Investment Decisions Later in Life

We study how subjective survival beliefs and financial literacy jointly shape saving and portfolio decisions later in life. Using data from the English Longitudinal Study of Ageing, we document that individuals who underestimate their survival probabilities are less likely to participate in risky financial markets. To identify the underlying mechanisms, we conduct a randomized survey experiment that cross-randomizes survival and financial literacy interventions and independently randomizes participation costs. Survival literacy updates subjective longevity beliefs, whereas financial literacy increases risky-asset participation by attenuating the deterrent effect of participation costs. We then build a heterogeneous-agent life-cycle model to evaluate survey-informed, revenue-neutral policy interventions. The counterfactuals show that financial literacy is the main driver of market entry, while survival literacy is complementary to financial literacy in raising the share of wealth invested in risky assets; only survival literacy, however, delivers positive welfare gains once financing costs are taken into account.