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The effect of financial knowledge and demographic variables on passive and active investment in Chile's pension plan

Published online by Cambridge University Press:  23 June 2014

WERNER D. KRISTJANPOLLER  and
JOSEPHINE E. OLSON
WERNER D. KRISTJANPOLLER
Affiliation:
Departamento de Industrias, Universidad Técnica Federico Santa María, Av. España 1680, Valparaíso, Chile (e-mail: [email protected])
JOSEPHINE E. OLSON
Affiliation:
Joseph M. Katz Graduate School of Business, University of Pittsburgh, 308 Mervis Hall, Pittsburgh, PA 15260, USA (e-mail: [email protected])
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Abstract

This paper contributes to research on defined contribution (DC) retirement plans by examining how financial knowledge and demographic factors influenced Chile's pension holders' choice between a default life-cycle retirement plan and active management. About one third of Chileans held default funds in 2009; younger people, men, people with lower incomes, and people with low financial knowledge were more likely to choose the default. For active investors, we examined what variables influenced their choice. Nearly three quarters of active investors chose more risky funds that the defaults for their age group. However, risk taking tended to decrease with age and to increase with income, financial knowledge and risk tolerance.

Keywords

D14E21D81DC Pension PlansFinancial LiteracyPortfolio ChoiceRetirementChilean Multi-fund System
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 14 , Issue 3 , July 2015 , pp. 293 - 314
Copyright
Copyright © Cambridge University Press 2014 

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References

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