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Financial Literacy and Planning: Implications for Retirement Wellbeing

  • Annamaria Lusardi
  • Olivia S. Mitchell

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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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
Date of revision:
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
Note: AG
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  1. Laurent Calvet & Paolo Sodini & John Y. Campbell, 2007. "Down or out: Assessing the welfare costs of household investment mistakes," Post-Print hal-00671903, HAL.
  2. Annamaria Lusardi & Olivia S. Mitchell, 2009. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," NBER Working Papers 15350, National Bureau of Economic Research, Inc.
  3. Martin Browning & Annamaria Lusardi, 1996. "Household Saving: Micro Theories and Micro Facts," Journal of Economic Literature, American Economic Association, vol. 34(4), pages 1797-1855, December.
  4. John Ameriks & Andrew Caplin & John Leahy, 2003. "Wealth Accumulation And The Propensity To Plan," The Quarterly Journal of Economics, MIT Press, vol. 118(3), pages 1007-1047, August.
  5. John Leahy & Andrew Caplin, 2004. "The Absentminded Consumer," 2004 Meeting Papers 784, Society for Economic Dynamics.
  6. 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.
  7. 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, vol. 118(3), pages 815-842, August.
  8. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-29, September.
  9. Steven F. Venti & David A. Wise, 2000. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Working Papers 7521, National Bureau of Economic Research, Inc.
  10. 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.
  11. 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.
  12. James F. Moore & Olivia S. Mitchell, . "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers 98-1, Wharton School Pension Research Council, University of Pennsylvania.
  13. Sewin Chan & Ann Huff Stevens, 2003. "What You Don't Know Can't Help You: Pension Knowledge and Retirement Decision Making," NBER Working Papers 10185, National Bureau of Economic Research, Inc.
  14. Olivia S. Mitchell & James Moore & John Phillips, . "Explaining Retirement Saving Shortfalls," Pension Research Council Working Papers 98-13, Wharton School Pension Research Council, University of Pennsylvania.
  15. Olivia S. Mitchell, 1987. "Worker Knowledge of Pension Provisions," NBER Working Papers 2414, National Bureau of Economic Research, Inc.
  16. Emmanuel Saez & Esther Duflo, 2003. "The role of information and social interactions in retirement plan decisions: Evidence from a randomized experiment," Framed Field Experiments 00141, The Field Experiments Website.
  17. 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.), issue Jul, pages 309-322.
  18. Douglas D. Bernheim, . "Financial Illiteracy, Education, and Retirement Saving," Pension Research Council Working Papers 96-7, Wharton School Pension Research Council, University of Pennsylvania.
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