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Key Findings Details

Financial Knowledge and Financial Literacy at the Household Level
Alan L. Gustman, Thomas L. Steinmeier and Nahid Tabatabai
WP 2010-223

  • The more valuable the pension, the more knowledgeable are covered workers about their pensions. We argue that causality is more likely to run from pension wealth to pension knowledge than the other way around.
  • Most measures of cognitive ability, including numeracy, are not significant determinants of pension and Social Security knowledge.
  • Standardizing for incomes and other factors, a pension of higher value does not substitute for other forms of wealth. Counting pensions in total wealth, those with more valuable pensions save more for retirement, ceteris paribus.
  • There is no evidence that wealth held outside of pensions is related to knowledge of pensions.
  • Our findings raise questions about the avenues through which cognition and numeracy increase retirement wealth. Numeracy does not influence wealth in whole or in part by affecting financial knowledge of one's pension plan, where financial knowledge of the pension then influences other decisions about retirement saving.
  • Accordingly, our analysis raises questions about whether the apparently robust numeracy-wealth relation provides a justification for designing policies that are aimed at increasing retirement saving by increasing numeracy or financial literacy.