Business Economics and Public Policy Papers
Document Type
Journal Article
Date of this Version
4-2017
Publication Source
Journal of Political Economy
Volume
125
Issue
2
Start Page
431
Last Page
477
DOI
10.1086/690950
Abstract
We show that financial knowledge is a key determinant of wealth inequality in a stochastic life cycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the US social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one in which returns on wealth depend on portfolio composition alone. We estimate that 30–40 percent of retirement wealth inequality is accounted for by financial knowledge.
Copyright/Permission Statement
© 2017 by The University of Chicago Press
Recommended Citation
Lusardi, A., Michaud, P., & Mitchell, O. (2017). Optimal Financial Knowledge and Wealth Inequality. Journal of Political Economy, 125 (2), 431-477. http://dx.doi.org/10.1086/690950
Embargo Date
3-7-2019
Included in
Business Commons, Economics Commons, Public Affairs, Public Policy and Public Administration Commons
Date Posted: 27 November 2017
This document has been peer reviewed.