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Knowledge, Information and retirement saving decisions: Evidence from a large scale intervention in Chile

All over the world, retirement income is increasingly depending on an individual’s savings choices over their lifetime. To assess if individuals are saving enough for their old age at least three questions are relevant: Do they know how much saving is necessary to achieve a desired living standard in old age? Would they make different decision is faced with new information about their ongoing retirement savings? Is there enough time or is it too late to improve their retirement income by increasing current savings? A growing literature has shown evidence of widespread financial illiteracy in the US and other developed countries, which would prevent making adequate choices. In this article, we exploit a unique large scale natural experiment to analyze the impact of improving information, in the form of a new personalized pension projection on the retirement saving behavior of Chilean workers. Using matching techniques and a rich administrative data set, we find that the new information provided caused an increase in the probability of making voluntary contributions for old age, of approximately 1.4 percentage points, for individuals in the 40-50 age-group. The effect on younger cohorts was smaller. The impact on women is significantly larger than that on men, potentially reflecting a higher sense of urgency. As expected, individuals exposed to a positive tax benefit when making voluntary contributions exhibit a significantly larger impact than tax exempt individuals, but individuals with high projected replacement rates present a slightly higher impact than those with lower replacement rates. Overall, these results show how a simple improvement in the information provided by pension administrators can have important effects on individual savings decisions.

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Paper provided by Adolfo Ibáñez University, School of Government in its series Working Papers with number wp_011.

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Date of creation: May 2011
Date of revision:
Handle: RePEc:uai:wpaper:wp_011
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  1. Annamaria Lusardi & Olivia S. Mitchell, 2006. "Baby Boomer Retirement Security: The Roles of Planning, Financial Literacy, and Housing Wealth," Working Papers wp114, University of Michigan, Michigan Retirement Research Center.
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  3. Guido Imbens & Jeffrey Wooldridge, 2008. "Recent developments in the econometrics of program evaluation," CeMMAP working papers CWP24/08, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  4. CLARK, ROBERT L. & d'AMBROSIO, MADELEINE B. & McDERMED, ANN A. & SAWANT, KSHAMA, 2006. "Retirement plans and saving decisions: the role of information and education," Journal of Pension Economics and Finance, Cambridge University Press, vol. 5(01), pages 45-67, March.
  5. Annamaria Lusardi, 2006. "Planning and Financial Literacy: How Do Women Fare?," Working Papers wp136, University of Michigan, Michigan Retirement Research Center.
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  7. Shawn Cole & Thomas Sampson & Bilal Zia, 2011. "Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?," Journal of Finance, American Finance Association, vol. 66(6), pages 1933-1967, December.
  8. John Beshears & James Choi & David Laibson & Brigitte Madrian, 2009. "How Does Simplified Disclosure Affect Individuals' Mutual Fund Choices?," Yale School of Management Working Papers amz2547, Yale School of Management, revised 24 Jun 2009.
  9. 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.
  10. Alberto Abadie & Guido W. Imbens, 2002. "Simple and Bias-Corrected Matching Estimators for Average Treatment Effects," NBER Technical Working Papers 0283, National Bureau of Economic Research, Inc.
  11. Francisco Pino & Solange Berstein & Guillermo Larraín, 2006. "Chilean Pension Reform: Coverage Facts and Policy Alternatives," ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, ECONOMIA JOURNAL OF THE LATIN AMERICAN AND CARIBBEAN ECONOMIC ASSOCIATION, January.
  12. Solange Berstein & Andrea Tokman, 2005. "Brechas de ingreso entre géneros: ¿Perpetuadas o exacerbadas en la vejez?," Working Papers 8, Superintendencia de Pensiones, revised Jul 2005.
  13. Heckman, James J & Ichimura, Hidehiko & Todd, Petra, 1998. "Matching as an Econometric Evaluation Estimator," Review of Economic Studies, Wiley Blackwell, vol. 65(2), pages 261-94, April.
  14. Annamaria Lusardi & Olivia S Mitchelli, 2007. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education," Business Economics, Palgrave Macmillan, vol. 42(1), pages 35-44, January.
  15. John Conlisk, 1996. "Why Bounded Rationality?," Journal of Economic Literature, American Economic Association, vol. 34(2), pages 669-700, June.
  16. Zhong Zhao, 2004. "Using Matching to Estimate Treatment Effects: Data Requirements, Matching Metrics, and Monte Carlo Evidence," The Review of Economics and Statistics, MIT Press, vol. 86(1), pages 91-107, February.
  17. 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.
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