Financial Literacy: Evidence from the Cusp of Retirement

File(s)
Date
2010Author
Seligman, Jason S.
Publisher
Center for Financial Security
Metadata
Show full item recordAbstract
Following a survey of employees estimated to be one year from retirement I analyze
responses to a twelve item financial literacy quiz relating scores to evidence of
planning exercises, self-assessed proficiency with economics, education, wealth, IRA
ownership and a battery of demographic controls. I find evidence of difficulty self-assessing understanding of economics and concepts related to financial literacy.
Measures of satisfaction with finances and with health are each better predictors of
score than self-assessed ability. Remarkably, higher level wealth & education groups
show evidence of being least self-aware, and are remarkably overconfident when
considering the distance between their self assessed proficiency and actual
performance on the quiz. Based on evidence I conclude that reported self-assessment
is of limited use. I find exercises related to compound interest are important building
blocks for understanding financial decisions regarding lump-sums. Because some of
those who might benefit the most from education may not be aware of their needs,
and because evidence of a strong cluster of this type is observed to exist among the
most well off, as well as making informed decisions on their own, surveyed
participants are likely to benefit from educational tools that help them engage and
assess work with financial managers.
Subject
Financial Literacy
Retirement
Permanent Link
http://digital.library.wisc.edu/1793/90753Type
Working Paper
Description
Following a survey of employees estimated to be one year from retirement Seligman analyzed responses to a twelve item financial literacy quiz relating scores to evidence of planning exercises, self-assessed proficiency with economics, education, wealth, IRA ownership and a battery of demographic controls.
Citation
Seligman , J. S. (2010). Financial Literacy: Evidence from the Cusp of Retirement . Center for Financial Security .