Hostname: page-component-cd9895bd7-dzt6s Total loading time: 0 Render date: 2024-12-19T05:49:29.762Z Has data issue: false hasContentIssue false
  • English
  • Français

An empirical study on how financial literacy contributes to preparation for retirement

Published online by Cambridge University Press:  08 October 2020

Tsung-ming Yeh Open the ORCID record for Tsung-ming Yeh [Opens in a new window]
Tsung-ming Yeh*
Affiliation:
Kyushu University, Fukuoka, Japan
*
Corresponding author. Email: [email protected]
Get access Rights & Permissions [Opens in a new window]

Abstract

This study provides empirical evidence on the mechanisms through which financial literacy may be associated with saving for retirement, in the three phases of the decision-making process – information perception, information search and evaluation, and decision-making and implementation. The results indicate that financial literacy has significantly positive effects on one's awareness of post-retirement financial needs, comparing alternatives when purchasing financial products, displaying fewer present-time bias, and planning for and setting aside funds for retirement. Financial literacy not only directly contributes to planning for the future, but also indirectly via a reduction in behavioral biases.

Keywords

Financial literacyloss aversionpresent time biassaving for retirement
Type
Article
Information
Journal of Pension Economics & Finance , Volume 21 , Issue 2 , April 2022 , pp. 237 - 259
Copyright
Copyright © The Author(s), 2020. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Abadie, A and Imbens, G (2016) Matching on the estimated propensity score. Econometrica 84(2), 781–807.CrossRefGoogle Scholar
Agarwal, S, Driscoll, J, Gabaix, X and Laibson, D (2009) The age of reason: financial decisions over the lifecycle and implications for regulation. Brookings Papers on Economic Activity 2, 51–117.CrossRefGoogle Scholar
Agnew, JR (2011) Pension participant behavior. In Baker, HK and Nofsinger, JR (eds), Behavioral Finance. New Jersey: John Wiley & Sons, Inc, pp. 577–594.Google Scholar
Agnew, JR and Szykman, LR (2005) Asset allocation and information overload: the influence of information display, asset choice, and investor experience. Journal of Behavioral Finance 6(2), 57–70.CrossRefGoogle Scholar
Behrman, J, Mitchell, O, Soo, CK and Bravo, D (2012) How financial literacy affects household wealth accumulation. American Economic Review 102, 300–304.CrossRefGoogle ScholarPubMed
Calvet, L, Campbell, J and Sodini, P (2009) Measuring the financial sophistication of households. American Economic Review 99, 393–398.CrossRefGoogle Scholar
Choi, JJ, Laibson, D and Metrick, A (2002) How does the internet affect trading? Evidence from investor behavior in 401(k) plans. Journal of Financial Economics 64(3), 397–421.CrossRefGoogle Scholar
Choi, JJ, Laibson, D and Brigitte, M (2010) Why does the law of one price fail? An experiment on index mutual funds. Review of Financial Studies 23(4), 1405–1432.CrossRefGoogle ScholarPubMed
Clark, R and d'Ambrosio, M (2008) Adjusting retirement goals and savings behavior: The role of financial education. In Lusardi, A (ed.), Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Savings Programs. Chicago: University of Chicago Press, pp. 237–256.Google Scholar
Daxhammer, RJ and Facsar, M (2012) Behavioral Finance. Verhaltenswissenschaftliche Finanzmarktforschung im Lichte Begrenzt Rationaler Marktteilnehmer. Constance: UVK.Google Scholar
Dhar, R and Zhu, N (2006) Up close and personal: investor sophistication and the disposition effect. Management Science 52(5), 726–740.CrossRefGoogle Scholar
Disney, R and Gathergood, J (2013) Financial literacy and consumer credit portfolios. Journal of Banking and Finance 37, 2246–2254.CrossRefGoogle Scholar
Duflo, E and Saez, E (2002) Participation and investment decisions in a retirement plan: the influence of colleagues’ choices. Journal of Public Economics 85(1), 121–148.CrossRefGoogle Scholar
Gathergood, J and Weber, J (2017) Financial literacy, present bias and alternative mortgage products. Journal of Banking and Finance 78, 58–83.CrossRefGoogle Scholar
Gerardi, K, Goette, L and Meier, S (2010) Financial Literacy and Subprime Mortgage Delinquency: Evidence From A Survey Matched to Administrative Data. Federal Reserve Bank of Atlanta Working Paper 2010-10, 1–53.Google Scholar
Gustman, AL, Steinmeier, TL and Tabatabai, N (2012) Financial knowledge and financial literacy at the household level. American Economic Review: Papers & Proceedings 102(3), 309–313.CrossRefGoogle Scholar
Hastings, JS, Madrian, BC and Skimmyhorn, WL (2013) Financial literacy, financial education and economic outcomes. Annual Review of Economics 5, 347–373.CrossRefGoogle ScholarPubMed
Jappelli, T (2010) Economic literacy: an international comparison. Economic Journal 120(548), 429–451.CrossRefGoogle Scholar
Jappelli, T and Padula, M (2013) Investing in financial literacy and saving decisions. Journal of Banking and Finance 37, 2779–2792.CrossRefGoogle Scholar
Kahneman, D and Tversky, A (1979) Prospect theory: an analysis of decision under risk. Econometrica 47(2), 263–291.CrossRefGoogle Scholar
Klapper, L, Lusardi, A and Panos, GA (2013) Financial literacy and its consequences: evidence from Russia during the financial crisis. Journal of Banking and Finance 37, 3904–3923.CrossRefGoogle Scholar
Laibson, D (1997) Golden eggs and hyperbolic discounting. Quarterly Journal of Economics 112(2), 443–478.CrossRefGoogle Scholar
Loerwald, D and Stemmann, A (2016) Behavioral finance and financial literacy: Educational implications of biases in financial decision making. In Aprea, C, Wuttke, E, Breuer, K, Koh, NK, Davies, P, Greimel-Fuhrmann, B and Lopus, JS (eds), et al. . (eds), International Handbook of Financial Literacy. Singapore: Springer, pp. 25–38.CrossRefGoogle Scholar
Lusardi, A and Mitchell, OS (2007) Financial literacy and retirement preparedness: evidence and implications for financial education. Business Economics 42(1), 35–44.CrossRefGoogle Scholar
Lusardi, A and Mitchell, OS (2008) Planning and financial literacy: how do women fare? The American Economic Review. 98(2), Papers and Proceedings of the One Hundred Twentieth Annual Meeting of the American Economic Association, pp. 413–417.Google Scholar
Lusardi, A and Tufano, P (2009) Debt literacy, financial experience and over-indebtedness. NBER Working Paper 14808, 1–44.Google Scholar
MacFarland, DM, Marconi, CD and Utkus, SP (2004) Money attitudes’ and retirement plan design: One size does not fit all. In Mitchell, OS and Utkus, SP (eds), Pension Design and Structure: New Lessons From Behavioral Finance. New York: Oxford University Press, pp. 97–120.CrossRefGoogle Scholar
Meier, S and Sprenger, C (2010) Present-biased preferences and credit card borrowing. American Economic Journal 2(1), 193–210.Google Scholar
Moore, D (2003) Survey of financial literacy in Washington State: knowledge, behavior, attitudes, and experiences. Washington State University Social and Economic Sciences Research Center Technical Report, pp. 03–39.Google Scholar
Moreno-Herrero, D, Salas-Velasco, M and Sanchez-Campillo, J (2018) Factors that influence the level of financial literacy among young people: the role of parental engagement and students' experiences with money matters. Children and Youth Services Review 95, 334–351.CrossRefGoogle Scholar
Roodman, D (2011) Fitting fully observed recursive mixed-process models with cmp. The Stata Journal 11(2), 159–206.CrossRefGoogle Scholar
Samuelson, W and Zeckhauser, R (1988) Status quo bias in decision making. Journal of Risk and Uncertainty 1(1), 7–59.CrossRefGoogle Scholar
Stock, JH and Yogo, M (2005) Testing for weak instruments in linear IV regression. In Stock, JH and Andrews, DWK (eds), Identification and Inference for Econometric Models: Essays in Honor of Thomas J. Rothenberg: Cambridge University Press, pp. 80–108.CrossRefGoogle Scholar
Tang, N and Peter, PC (2015) Financial knowledge acquisition among the young: the role of financial education, financial experience, and parents' financial experience. Financial Services Review 24, 119–137.Google Scholar
Thaler, R and Shefrin, HM (1981) An economic theory of self-control. Journal of Political Economy 89(2), 392–406.CrossRefGoogle Scholar
van Rooij, M, Lusardi, A and Alessie, RJM (2011) Financial literacy and stock market participation. Journal of Financial Economics 101(2), 449–472.CrossRefGoogle Scholar
van Rooij, M, Lusardi, A and Alessie, RJM (2012) Financial literacy, retirement planning and household wealth. Economic Journal 122, 449–478.CrossRefGoogle Scholar
Von Gaudecker, H (2015) How does household portfolio diversification vary with financial literacy and financial advice? Journal of Finance 70(2), 489–507.CrossRefGoogle Scholar