Financial literacy and financial sophistication in the older population*. (26th February 2014)

• Record Type: Journal Article
• Authors: LUSARDI, ANNAMARIA; MITCHELL, OLIVIA S.; CURTO, VILSA
• Is Part Of: Journal of pension economics & finance. Volume 13(2014)Supplement 4
• Page Start: 347
• Page End: 366
• Publication Date: 2014-02-26
• Subjects: D91, -- G11; Financial knowledge, -- framing, -- gender differences, -- retirement security; Pensions -- Finance -- Periodicals; Social security -- Finance -- Periodicals; 331.25205
• DOI: 10.1017/S1474747214000031
• Languages: English
• ISSNs: 1474-7472

Abstract

Abstract: 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.