Optimal Financial Literacy and Saving for Retirement

Loading...
Thumbnail Image
Penn collection
Wharton Pension Research Council Working Papers
Degree type
Discipline
Subject
Economics
Funder
Grant number
License
Copyright date
Distributor
Related resources
Contributor
Abstract

Recent studies show that financial literacy is strongly positively related to household wealth, but there is also substantial cross-sectional variation in both financial literacy and wealth levels. To explore these patterns, we develop a calibrated stochastic life cycle model which features endogeneous financial literacy accumulation. Our model generates substantial wealth inequality, over and above what standard lifecycle models produce. This is due to the fact that higher earners typically have more hump-shaped labor income profiles and lower retirement benefits which, when interacted with the precautionary saving motive, boosts their need for private wealth accumulation and thus financial literacy. We show that the fraction of the population which is rationally “financially ignorant” depends on the level of labor income uncertainty as well as the generosity of the retirement system.

Advisor
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Publication date
2011-09-01
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation
Collection