Hostname: page-component-cd9895bd7-7cvxr Total loading time: 0 Render date: 2024-12-28T04:38:14.616Z Has data issue: false hasContentIssue false
  • English
  • Français

Financial literacy, trust and retirement planning

Published online by Cambridge University Press:  20 August 2015

ORNELLA RICCI  and
MASSIMO CARATELLI
ORNELLA RICCI
Affiliation:
Business Studies, University of Roma Tre, Rome, Italy (e-mail: [email protected])
MASSIMO CARATELLI
Affiliation:
Business Studies, University of Roma Tre, Rome, Italy (e-mail: [email protected])
Get access Rights & Permissions [Opens in a new window]

Abstract

We study the complex relationship between financial literacy, retirement planning and trust in financial institutions, using data from the 2010 Bank of Italy Survey on Household Income and Wealth. The impact of financial literacy on retirement planning is a well-established issue in the existing empirical literature; our main contribution is proving that financial knowledge not only impacts retirement planning, but also the decisions of entering a private pension scheme (or devoting the severance pay to a private pension scheme). Adding the consideration of trust poses serious econometric concerns, since both financial literacy and trust in financial institutions are likely to be endogenous and the presence of two endogenous regressors renders the identification of causality very difficult. Our solution is to keep only financial literacy as endogenous and include in our models an exogenous regional indicator of social capital (similar to the one adopted by Guiso et al., 2004), as a proxy for the level of trust between the counterparts of a financial contract in each geographical area. Our main findings show that trust has a positive influence on both the decisions to enter a private pension scheme or to devote the severance pay to a private pension scheme.

Keywords

D14D83D91E21Retirement planningpension plan participationfinancial literacytrust
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 16 , Issue 1 , January 2017 , pp. 43 - 64
Copyright
Copyright © Cambridge University Press 2015 

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

Agnew, J. R., Szykman, L. R., Utkus, S. P. and Young, J. A. (2012) Trust, plan knowledge and 401(k)savings behavior. Journal of Pension Economics and Finance, 11: 1–20.Google Scholar
Bank of Italy (2012) Survey on Italian Household Income and Wealth in 2010 (SHIW 2010), available at: https://www.bancaditalia.it/pubblicazioni/indagine-famiglie/bil-fam2010/en_suppl_06_12n.pdf?language_id=1.Google Scholar
Baum, C. F., Schaffer, M. E. and Stillman, S. (2007) Enhanced routines for instrumental variables/generalized method of moments estimation and testing. Stata Journal, 7: 465–506.Google Scholar
Bucher-Koenen, T. and Lusardi, A. (2010) Financial literacy and retirement planning in Germany. Center for Doctoral Studies in Economics, University of Mannheim, Discussion Paper No. 107.Google Scholar
Cappelletti, G., Guazzarotti, G. and Tommasino, P. (2011) What determines annuity demand at retirement? Banca d'Italia, Working paper No. 805.Google Scholar
Commissione di Vigilanza sui fondi Pensione (COVIP) (2012) Annual Report, available at: http://www.covip.it/?cat=35#.Google Scholar
Fornero, E. and Monticone, C. (2011 a) Financial literacy and pension plan participation in Italy. Journal of Pension Economics and Finance, 10: 547–564.Google Scholar
Fornero, E. and Monticone, C. (2011 b) Financial literacy and pension plan participation in Italy. Netspar Discussion Paper 01/2011–019.CrossRefGoogle Scholar
Georgarakos, D. and Inderst, R. (2011) Financial advice and stock market participation. European Central Bank, Working paper No. 1296.Google Scholar
Guiso, L., Sapienza, P. and Zingales, L. (2004) The role of social capital in financial development. American Economic Review 94: 526–556.Google Scholar
Guiso, L., Sapienza, P. and Zingales, L. (2008) Trusting the stock market. Journal of Finance, 63: 2557–2600.Google Scholar
Lusardi, A. (2008) Financial literacy: an essential tool for informed consumer choice?. NATIONAL BUREAU OF ECONOMIC RESEARCH, Working Paper No. 14084.Google Scholar
Lusardi, A. and Mitchell, O. (2006) Financial literacy and planning: implications for retirement wellbeing. Working Paper, Pension Research Council, The Wharton School.Google Scholar
Lusardi, A. and Mitchell, O. (2007 a) Baby boomer retirement security: the roles of planning, financial literacy, and housing wealth. Journal of Monetary Economics, 54: 205–224.Google Scholar
Lusardi, A. and Mitchell, O. (2007 b) Financial literacy and retirement planning: new evidence from the Rand American Life Panel. MRRC Working paper No. 2007–157.Google Scholar
Lusardi, A. and Mitchell, O. (2008) Planning and financial literacy: how do women fare? American Economic Review, 98: 413–17.CrossRefGoogle Scholar
Lusardi, A. and Mitchell, O. (2010) How ordinary consumers make complex economic decisions: financial literacy and retirement readiness. Center for Financial Studies (CFS), Working paper No. 2010,11.Google Scholar
Klapper, L. and Panos, A. G. (2011) Financial literacy and retirement planning: the Russian case. Journal of Pension Economics and Finance, 10: 599–618.Google Scholar
Organisation for Economic Co-operation and Development (OECD) (2012) Pensions Outlook, available at: http://www.oecd-ilibrary.org/finance-and-investment/oecd-pensions-outlook-2012_9789264169401-en.Google Scholar
Oehler, A. and Werner, C. (2008) Saving for retirement – a case for financial education in Germany and UK? An economic perspective. Journal of Consumer Policy, 31: 253–283.Google Scholar
Pasini, G. and Georgarakos, D. (2009) Trust, sociability and stock market participation. Discussion Paper 04/2009 – 015.Google Scholar
Ring, P. J. (2005) Trust in UK pensions policy: a different approach? Policy and Politics, 33, 55–74.CrossRefGoogle Scholar
Taylor-Goodby, P. (2005) Uncertainty, trust and pensions: the case of the current UK reforms. Social Policy and Administration, 39: 217–232.Google Scholar
van Rooij, M., Lusardi, A. and Alessie, R. (2011 a) Financial literacy and retirement planning in the Netherlands. Journal of Economic Psychology, 32: 593–608.Google Scholar
van Rooij, M., Lusardi, A. and Alessie, R. (2011 b) Financial literacy and stock market participation. Journal of Financial Economics, 101: 449–472.Google Scholar
van Rooij, M., Lusardi, A. and Alessie, R. (2012) Financial literacy, retirement planning and household wealth. Economic Journal, 122: 449–478.Google Scholar