Working Paper: NBER ID: w17109
Authors: Rob J. Alessie; Maarten van Rooij; Annamaria Lusardi
Abstract: We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees' expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variables estimates for financial knowledge, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.
Keywords: financial literacy; retirement preparation; pension expectations
JEL Codes: D14; D91
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial literacy (G53) | retirement preparation (J26) |
| financial knowledge (G53) | retirement planning (J26) |
| financial literacy (G53) | pension expectations (H55) |
| financial literacy (G53) | perceived level of uncertainty regarding estimated replacement rates (H55) |
| financial knowledge (G53) | perceived level of uncertainty regarding estimated replacement rates (H55) |