Financial literacy and financial sophistication in the older population

Financial literacy and financial sophistication in the older population

Using a special-purpose module implemented in the Health and Retirement Study, we evaluate financial sophistication in the American population over the age of 50. We combine several financial literacy questions into an overall index to highlight which questions best capture financial sophistication...

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Bibliographic Details
Published in:Journal of pension economics & finance 2014-10, Vol.13 (4), p.347-366
Main Authors: LUSARDI, ANNAMARIA, MITCHELL, OLIVIA S., CURTO, VILSA
Format: Article
Language:eng
Subjects:
Baby boomers
Capital markets
Compound interest
Diversification
Education
Financial literacy
Illiteracy
Individual retirement accounts
Interest rates
Investments
IRA
Knowledge
Low income groups
Mortgages
Older people
Polls & surveys
Population
Retirement
Retirement planning
Securities markets
Stock exchanges
Studies
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Summary:Using a special-purpose module implemented in the Health and Retirement Study, we evaluate financial sophistication in the American population over the age of 50. We combine several financial literacy questions into an overall index to highlight which questions best capture financial sophistication and examine the sensitivity of financial literacy responses to framing effects. Results show that many older respondents are not financially sophisticated: they fail to grasp essential aspects of risk diversification, asset valuation, portfolio choice, and investment fees. Subgroups with notable deficits include women, the least educated, non-Whites, and those age 75+. In view of the fact that retirees increasingly must take on responsibility for their own retirement security, such meager levels of knowledge have potentially serious and negative implications.
ISSN:1474-7472
1475-3022