IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Financial Literacy, Retirement Planning, and Household Wealth

Listed author(s):
  • Maarten van Rooij
  • Annamaria Lusardi
  • Rob J. Alessie

There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retirement with few or no personal assets. In this paper, we investigate the relationship between financial literacy and household net worth, relying on comprehensive measures of financial knowledge designed for a special module of the Dutch Central Bank Household Survey (DHS). Our findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. Moreover, we discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth. Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth.

If 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.

File URL: http://www.nber.org/papers/w17339.pdf
Download Restriction: no

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 17339.

as
in new window

Length:
Date of creation: Aug 2011
Publication status: published as Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, 05.
Handle: RePEc:nbr:nberwo:17339
Note: AG
Contact details of provider: Postal:
National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.

Phone: 617-868-3900
Web page: http://www.nber.org
Email:


More information through EDIRC

References listed on IDEAS
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.:

as
in new window


  1. Kenneth R. French, 2008. "Presidential Address: The Cost of Active Investing," Journal of Finance, American Finance Association, vol. 63(4), pages 1537-1573, August.
  2. Thomas Dohmen & Armin Falk & David Huffman & Uwe Sunde, 2010. "Are Risk Aversion and Impatience Related to Cognitive Ability?," American Economic Review, American Economic Association, vol. 100(3), pages 1238-1260, June.
  3. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2007. "The Age of Reason: Financial Decisions Over the Lifecycle," NBER Working Papers 13191, National Bureau of Economic Research, Inc.
  4. John Ameriks & Andrew Caplin & John Leahy & Tom Tyler, 2007. "Measuring Self-Control Problems," American Economic Review, American Economic Association, vol. 97(3), pages 966-972, June.
  5. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages 164-187, February.
  6. Oecd, 2006. "Improving Financial Literacy: Analysis of Issues and Policies," Financial Market Trends, OECD Publishing, vol. 2005(2), pages 111-123.
  7. 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.
  8. Reis, Ricardo, 2006. "Inattentive consumers," Journal of Monetary Economics, Elsevier, vol. 53(8), pages 1761-1800, November.
  9. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2008. "Trusting the Stock Market," Journal of Finance, American Finance Association, vol. 63(6), pages 2557-2600, December.
  10. Bernheim, B. Douglas & Garrett, Daniel M. & Maki, Dean M., 2001. "Education and saving:: The long-term effects of high school financial curriculum mandates," Journal of Public Economics, Elsevier, vol. 80(3), pages 435-465, June.
  11. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 2005. "Explaining the wealth holdings of different cohorts: Productivity growth and Social Security," European Economic Review, Elsevier, vol. 49(5), pages 1361-1391, July.
  12. Binswanger, Johannes & Schunk, Daniel, 2012. "What is an adequate standard of living during Retirement?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 11(02), pages 203-222, April.
  13. Alan L. Gustman & Thomas L. Steinmeier & Nahid Tabatabai, 2012. "Financial Knowledge and Financial Literacy at the Household Level," American Economic Review, American Economic Association, vol. 102(3), pages 309-313, May.
  14. Luigi Guiso & Tullio Jappelli, 2005. "Awareness and Stock Market Participation," Review of Finance, European Finance Association, vol. 9(4), pages 537-567.
  15. P.J.A. van Els & W.A. van den End & M.C.J. van Rooij, 2003. "Pensions and public opinion: a survey among Dutch households," MEB Series (discontinued) 2003-18, Netherlands Central Bank, Monetary and Economic Policy Department.
  16. John Ameriks & Andrew Caplin & John Leahy, 2003. "Wealth Accumulation and the Propensity to Plan," The Quarterly Journal of Economics, Oxford University Press, vol. 118(3), pages 1007-1047.
  17. 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.
  18. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
  19. 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.
  20. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 42(1), pages 35-44, January.
  21. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
  22. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
  23. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
  24. Kapteyn, Arie & Teppa, Federica, 2011. "Subjective measures of risk aversion, fixed costs, and portfolio choice," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 564-580, August.
  25. Mark van Duijn & Maarten Lindeboom & Mauro Mastrogiacomo & M. Lundborg, 2009. "Pension plans and the retirement replacement rates in the Netherlands," CPB Discussion Paper 118, CPB Netherlands Bureau for Economic Policy Analysis.
  26. 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.
  27. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
  28. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 497-508, October.
  29. 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, Oxford University Press, vol. 118(3), pages 815-842.
  30. van Rooij, Maarten C.J. & Kool, Clemens J.M. & Prast, Henriette M., 2007. "Risk-return preferences in the pension domain: Are people able to choose?," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 701-722, April.
  31. repec:ete:ceswps:ces9805 is not listed on IDEAS
  32. Annamaria Lusardi & Olivia S. Mitchell, 2011. "The Outlook for Financial Literacy," NBER Working Papers 17077, National Bureau of Economic Research, Inc.
  33. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
  34. Christelis, Dimitris & Jappelli, Tullio & Padula, Mario, 2010. "Cognitive abilities and portfolio choice," European Economic Review, Elsevier, vol. 54(1), pages 18-38, January.
  35. Brad M. Barber & Terrance Odean, 2000. "Trading Is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors," Journal of Finance, American Finance Association, vol. 55(2), pages 773-806, April.
  36. Rosen, H.S.Harvey S. & Wu, Stephen, 2004. "Portfolio choice and health status," Journal of Financial Economics, Elsevier, vol. 72(3), pages 457-484, June.
  37. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-1129, September.
  38. Mitchell, Olivia S. & Utkus, Stephen P. (ed.), 2004. "Pension Design and Structure: New Lessons from Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780199273393.
  39. 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.
  40. Brad M. Barber & Terrance Odean, 2001. "Boys will be Boys: Gender, Overconfidence, and Common Stock Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 116(1), pages 261-292.
  41. Victor R. Fuchs, 1982. "Time Preference and Health: An Exploratory Study," NBER Chapters,in: Economic Aspects of Health, pages 93-120 National Bureau of Economic Research, Inc.
  42. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.
  43. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
  44. John Ameriks & Andrew Caplin & John Leahy, 2002. "Wealth Accumulation and the Propensity to Plan," NBER Working Papers 8920, National Bureau of Economic Research, Inc.
  45. Steven F. Venti & David A. Wise, 2001. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Chapters,in: Aging Issues in the United States and Japan, pages 25-64 National Bureau of Economic Research, Inc.
  46. 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.
  47. Hurd, Michael D, 1989. "Mortality Risk and Bequests," Econometrica, Econometric Society, vol. 57(4), pages 779-813, July.
  48. John Karl Scholz & Ananth Seshadri & Surachai Khitatrakun, 2006. "Are Americans Saving "Optimally" for Retirement?," Journal of Political Economy, University of Chicago Press, vol. 114(4), pages 607-643, August.
  49. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September.
  50. Shlomo Benartzi & Richard Thaler, 2004. "Save more tomorrow: Using behavioral economics to increase employee saving," Natural Field Experiments 00337, The Field Experiments Website.
  51. Alessie, Rob & Van Rooij, Maarten & Lusardi, Annamaria, 2011. "Financial literacy and retirement preparation in the Netherlands," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(04), pages 527-545, October.
  52. Annette Vissing-Jorgensen, 2004. "Perspectives on Behavioral Finance: Does "Irrationality" Disappear with Wealth? Evidence from Expectations and Actions," NBER Chapters,in: NBER Macroeconomics Annual 2003, Volume 18, pages 139-208 National Bureau of Economic Research, Inc.
  53. Bovenberg, A.L. & Koijen, R.S.J. & Nijman, T.E. & Teulings, C.N., 2007. "Saving and investing over the life cycle and the role of collective pension funds," Other publications TiSEM 6eab1341-eda5-4f21-8c06-8, Tilburg University, School of Economics and Management.
  54. John Karl Scholz & Ananth Seshadri, 2008. "Are All Americans Saving ‘Optimally’ for Retirement?," Working Papers wp189, University of Michigan, Michigan Retirement Research Center.
  55. Joao F. Cocco, 2005. "Consumption and Portfolio Choice over the Life Cycle," Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 491-533.
  56. Robert B. Barsky & F. Thomas Juster & Miles S. Kimball & Matthew D. Shapiro, 1997. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Study," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 537-579.
  57. Daniel J. Benjamin & Sebastian A. Brown & Jesse M. Shapiro, 2013. "Who Is ‘Behavioral’? Cognitive Ability And Anomalous Preferences," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1231-1255, December.
  58. Thaler, Richard H, 1994. "Psychology and Savings Policies," American Economic Review, American Economic Association, vol. 84(2), pages 186-192, May.
  59. Bernheim, B. Douglas & Garrett, Daniel M., 2003. "The effects of financial education in the workplace: evidence from a survey of households," Journal of Public Economics, Elsevier, vol. 87(7-8), pages 1487-1519, August.
  60. Alessie, Rob & Lusardi, Annamaria & Kapteyn, Arie, 1999. "Saving after retirement: evidence from three different surveys," Labour Economics, Elsevier, vol. 6(2), pages 277-310, June.
  61. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
  62. Venti, Steven F & Wise, David A, 1998. "The Cause of Wealth Dispersion at Retirement: Choice or Chance?," American Economic Review, American Economic Association, vol. 88(2), pages 185-191, May.
  63. Mitchell, Olivia S. & Lusardi, Annamaria (ed.), 2011. "Financial Literacy: Implications for Retirement Security and the Financial Marketplace," OUP Catalogue, Oxford University Press, number 9780199696819.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:17339. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.