RESUMEN

We track low-income respondents in the longitudinal Health and Retirement Study for 23 years, to observe how their financial situations unfolded as they aged. We document that (a) real incomes remained relatively stable as individuals entered retirement and progressed through their later years; and (b) labor force participation declined and thus earnings became less important with age, while Social Security and retirement savings rose as a proportion of annual income. Low-income people near retirement also tended to fare poorly during retirement.

RESUMEN

OBJECTIVES: The consequences of poor financial capability at older ages are serious and include making mistakes with credit, spending retirement assets too quickly, and being defrauded by financial predators. Because older persons are at or past the peak of their wealth accumulation, they are often the targets of fraud. METHODS: Our project analyzes a module we developed and fielded on people aged 50 an older years in the 2016 Health and Retirement Study (HRS). Using this data set, we evaluated the incidence and prospective risk factors (measured in 2010) for investment fraud and prize/lottery fraud using logistic regression (N = 1,220). RESULTS: Relatively few HRS respondents mentioned any single form of fraud over the prior 5 years, but 5.0% reported at least one form of investment fraud and 4.4% recounted prize/lottery fraud. Greater wealth (nonhousing) was associated with investment fraud, whereas lower housing wealth and symptoms of depression were associated with prize/lottery fraud. Hispanics were significantly less likely to report either type of fraud. Other suspected risk factors-low social integration and financial literacy-were not significant. DISCUSSION: Fraud is a complex phenomenon and no single factor uniquely predicts victimization across different types, even within the category of investment fraud. Prevention programs should educate consumers about various types of fraud and increase awareness among financial services professionals.

Asunto(s)

Víctimas de Crimen/economía , Abuso de Ancianos/economía , Fraude/economía , Jubilación/economía , Anciano , Anciano de 80 o más Años , Víctimas de Crimen/estadística & datos numéricos , Abuso de Ancianos/estadística & datos numéricos , Femenino , Fraude/estadística & datos numéricos , Humanos , Aplicación de la Ley/métodos , Masculino , Persona de Mediana Edad , Evaluación de Necesidades , Estudios Prospectivos , Jubilación/estadística & datos numéricos , Estados Unidos , Poblaciones Vulnerables/estadística & datos numéricos

RESUMEN

We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle 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 U.S. 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 where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge.

RESUMEN

Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This article looks at financial literacy, which is defined as the ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. Financial literacy impacts financial decision making, with implications that apply to individuals, communities, countries, and society as a whole. Given the lack of financial literacy among the population, it may be important to remedy it by adding financial literacy to the school curriculum.

Asunto(s)

Toma de Decisiones , Administración Financiera , Alfabetización Informacional

RESUMEN

This paper reviews what we have learned over the past decade about financial literacy and its relationship to financial decision-making around the world. Using three questions, we have surveyed people in several countries to determine whether they have the fundamental knowledge of economics and finance needed to function as effective decision-makers. We find that levels of financial literacy are low not only in the United States. but also in many other countries including those with well-developed financial markets. Moreover, financial illiteracy is particularly acute for some demographic groups, especially women and the less-educated. These findings are important since financial literacy is linked to borrowing, saving, and spending patterns. We also offer new evidence on financial literacy among high school students drawing on the 2012 Programme for International Student Assessment implemented in 18 countries. Last, we discuss the implications of this research for policy.

RESUMEN

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 over 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.

RESUMEN

This paper undertakes an assessment of a rapidly growing body of economic research on financial literacy. We start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital. Endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population. Next, we draw on recent surveys to establish how much (or how little) people know and identify the least financially savvy population subgroups. This is followed by an examination of the impact of financial literacy on economic decision-making in the United States and elsewhere. While the literature is still young, conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps. A final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy.

RESUMEN

In an increasingly risky and globalized marketplace, people must be able to make well-informed financial decisions. Yet new international research demonstrates that financial illiteracy is widespread when financial markets are well developed as in Germany, the Netherlands, Sweden, Japan, Italy, New Zealand, and the United States, or when they are changing rapidly as in Russia. Further, across these countries, we show that the older population believes itself well informed, even though it is actually less well informed than average. Other common patterns are also evident: women are less financially literate than men and are aware of this shortfall. More educated people are more informed, yet education is far from a perfect proxy for literacy. There are also ethnic/racial and regional differences: city-dwellers in Russia are better informed than their rural counterparts, while in the U.S., African Americans and Hispanics are relatively less financially literate than others. Moreover, the more financially knowledgeable are also those most likely to plan for retirement. In fact, answering one additional financial question correctly is associated with a 3-4 percentage point higher chance of planning for retirement in countries as diverse as Germany, the U.S., Japan, and Sweden; in the Netherlands, it boosts planning by 10 percentage points. Finally, using instrumental variables, we show that these estimates probably underestimate the effects of financial literacy on retirement planning. In sum, around the world, financial literacy is critical to retirement security.