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Financial Capability in the United States: Consumer Decision-Making and the Role of Social Security

  • Annamaria Lusardi

    (Dartmouth College and Financial Literacy Center)

This paper analyzes new data from the 2009 National Financial Capability Study. This survey provides information to assess how American households make financial decisions, how they are faring under current economic conditions, and in what ways financial knowledge contributes to financial capability. In addition, it includes data about the information that the Social Security Administration (SSA) provides to consumers. The paper finds that the majority of individuals do not plan for retirement or make provisions against shocks. Debt management often results in sizable interest payments and fees and it is notable how many individuals have used high-cost methods of borrowing in the past five years. Levels of financial knowledge are strikingly low and many respondents do not possess knowledge of basic concepts. Social Security has taken steps to provide information about what individuals will expect to receive when they retire. The self-reported evidence provided in the survey shows that the information has been used by about a quarter of the population who acknowledge receiving the statement. Moreover, there are large differences among use in demographic groups and some of the more vulnerable populations, such as African-Americans, those hit by shocks, and single and separated individuals are more likely to use the statement.

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File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp226.pdf
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Paper provided by University of Michigan, Michigan Retirement Research Center in its series Working Papers with number wp226.

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Length: 34 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:mrr:papers:wp226
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  1. Dimitrios Christelis & Tullio Jappelli & Mario Padula, 2006. "Cognitive Abilities and Portfolio Choice," CSEF Working Papers 157, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  2. 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.
  3. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
  4. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, vol. 64(6), pages 2807-2849, December.
  5. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
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