Working Paper: NBER ID: w28236
Authors: Annamaria Lusardi; Olivia S. Mitchell; Noemi Oggero
Abstract: Poor financial capability can erode well-being in later life. To explore debt and debt management among older Americans, age 51-61, we designed and analyzed a new module in the 2018 Health and Retirement Study along with information from the 2018 National Financial Capability Study. Even though this group should be at the peak of their retirement savings, it nevertheless carries debt due to student loans and unpaid medical bills; having children also contributes to carrying debt close to retirement. By contrast, the financially literate have more positive financial perceptions and behaviors. Specifically, being able to answer one additional financial literacy question correctly is associated with a higher probability of reporting an above average credit record and planning for retirement. Higher financial literacy is also linked to being less likely to carry excessive debt, being contacted by debt collectors, and carrying medical debt or student loans, even after accounting for a large range of demographics and other characteristics. Evidently, financial knowledge can help limit debt exposure at older ages.
Keywords: debt; financial literacy; older Americans; retirement; financial capability
JEL Codes: G40; G41; G51; G53; H31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| higher financial literacy (G53) | lower likelihood of carrying excessive debt (G51) |
| higher financial literacy (G53) | lower likelihood of being contacted by debt collectors (G51) |
| higher financial literacy (G53) | lower likelihood of accumulating medical or student loan debt (G51) |
| higher financial literacy (G53) | increased likelihood of reporting above-average credit record (G51) |
| higher financial literacy (G53) | increased likelihood of effective retirement planning (J26) |
| being contacted by debt collectors (F34) | having medical debt (I10) |
| demographic factors (J11) | likelihood of experiencing negative financial outcomes (G41) |