Working Paper: NBER ID: w25061
Authors: Anders Anderson; David T. Robinson
Abstract: Using a financial literacy survey of Swedish pension investors matched to actual retirement savings decisions, we argue that respondents can be broken into three groups: those who are financially literate, those who mistakenly believe they are financially literate, and those who know that they are not. We examine how these groups respond differently to informational nudges encouraging them to take charge of their own investments. Investors with mistaken beliefs responded to the nudge, and were more likely to work with mass-market advisors who steer them into high-fee funds. They underperform as a result. By comparison, those who either possess financial literacy or else understand that they do not possess financial literacy were less likely to respond to the nudge. They avoided advisors, stayed with the low-cost default fund, and therefore accumulated retirement savings more quickly.
Keywords: financial literacy; retirement savings; nudges; self-awareness
JEL Codes: G11; G18; G4; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Nudge (D87) | Opting out of default funds (G23) |
| Nudge (D87) | Trading behavior (G40) |
| Lack of financial literacy (G53) | Opting out of default funds (G23) |
| Nudge (D87) | Choosing high-fee funds (G23) |
| Lack of self-awareness (D83) | Choosing high-fee funds (G23) |
| Metacognition (D83) | Staying in low-cost default funds (G23) |
| Metacognition (D83) | Better retirement savings outcomes (D14) |
| Nudge (D87) | Forming opinions on financial matters (G53) |
| Mass-market advisors (G24) | Exploiting biases (D91) |