Working Paper: NBER ID: w21356
Authors: Anders Anderson; Forest Baker; David T. Robinson
Abstract: We measure financial literacy among LinkedIn members, complementing standard questions with additional questions that allow us to gauge self-perceptions of financial literacy. Average financial literacy is surprisingly low given the demographics of our sample: fewer than two-thirds of CFOs, CEOs, and COOs complete the test correctly. Financial literacy, precautionary savings and retirement planning are positively correlated, but this is mostly driven by perceived, not actual, literacy: controlling for self-perceptions, actual literacy has low predictive power. Perceptions drive decision-making among low-literacy respondents and are associated with mistaken beliefs about financial products and less willingness to accept financial advice.
Keywords: financial literacy; precautionary savings; retirement planning
JEL Codes: G02
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Perceived financial literacy (G53) | Precautionary savings (D14) |
| Perceived financial literacy (G53) | Retirement planning decisions (J26) |
| Self-perceived literacy (G53) | Financial behaviors (G53) |
| Misperceptions (D83) | Suboptimal financial decisions (G41) |
| Self-confidence in financial knowledge (G53) | Participation in retirement planning (J26) |
| Misperceptions (D83) | Decision-making outcomes (D91) |
| Actual financial literacy (G53) | Financial behaviors (G53) |