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Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs

Author

Listed:
  • Annamaria Lusardi

    (Dartmouth College and NBER)

  • Olivia Mitchell

    (Wharton School)

Abstract

Economists are beginning to investigate the causes and consequences of financial illiteracy to better understand why retirement planning is lacking and why so many households arrive close to retirement with little or no wealth. Our review reveals that many households are unfamiliar with even the most basic economic concepts needed to make saving and investment decisions. Such financial illiteracy is widespread: the young and older people in the United States and other countries appear woefully under-informed about basic financial computations, with serious implications for saving, retirement planning, mortgages, and other decisions. In response, governments and several nonprofit organizations have undertaken initiatives to enhance financial literacy. The experience of other countries, including a saving campaign in Japan as well as the Swedish pension privatization program, offers insights into possible roles for financial literacy and saving programs.

Suggested Citation

  • Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp144
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    References listed on IDEAS

    as
    1. Alberto Arenas de Mesa & David Bravo & Jere R. Behrman & Olivia S. Mitchell & Petra E. Todd, 2006. "The Chilean Pension Reform Turns 25: Lessons From the Social Protection Survey," NBER Working Papers 12401, National Bureau of Economic Research, Inc.
    2. Oecd, 2006. "Improving Financial Literacy: Analysis of Issues and Policies," Financial Market Trends, OECD Publishing, vol. 2005(2), pages 111-123.
    3. Laurent E. Calvet & John Y. Campbell & Paolo Sodini, 2007. "Down or Out: Assessing the Welfare Costs of Household Investment Mistakes," Journal of Political Economy, University of Chicago Press, vol. 115(5), pages 707-747, October.
    4. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    5. Patrick J. Bayer & B. Douglas Bernheim & John Karl Scholz, 2009. "The Effects Of Financial Education In The Workplace: Evidence From A Survey Of Employers," Economic Inquiry, Western Economic Association International, vol. 47(4), pages 605-624, October.
    6. Sewin Chan & Ann Huff Stevens, 2008. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision-Making," The Review of Economics and Statistics, MIT Press, vol. 90(2), pages 253-266, May.
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    8. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    9. Sondra G. Beverly & Marianne A. Hilgert & Jeanne M. Hogarth, 2003. "Household financial management: the connection between knowledge and behavior," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Jul, pages 309-322.
    10. Mitchell, Olivia S, 1988. "Worker Knowledge of Pension Provisions," Journal of Labor Economics, University of Chicago Press, vol. 6(1), pages 21-39, January.
    11. Annamaria Lusardi & Jason Beeler, 2006. "Savings Between Cohorts: The Role of Planning," Working Papers wp122, University of Michigan, Michigan Retirement Research Center.
    12. James J. Choi & David Laibson & Brigitte C. Madrian & Andrew Metrick, 2004. "Saving or Retirement on the Path of Least Resistance," Levine's Bibliography 122247000000000606, UCLA Department of Economics.
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    15. Giovanni Mastrobuoni, 2007. "Do better–informed workers make better retirement choices? A test based on the Social Security Statement," Carlo Alberto Notebooks 51, Collegio Carlo Alberto.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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