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We undertake an assessment of our two decades of research on financial literacy, building on our empirical research and theoretical work casting financial knowledge as a form of investment in human capital. We also draw on recent data to determine who is the most—and least—financially savvy in the United States, and we highlight the similarity of our results in other countries. A number of convincing studies is now available, from which we draw conclusions about the effects and consequences of financial illiteracy, and what can be done to fill these gaps. We conclude by offering our thoughts on implications for teaching, policy, and future research.

Household financial decisions are complex, interdependent, and heterogeneous, and central to the functioning of the financial system. We present an overview of the rapidly expanding literature on household finance (with some important exceptions) and suggest directions for future research. We begin with the theory and empirics of asset market participation and asset allocation over the life cycle. We then discuss household choices in insurance markets, trading behavior, decisions on retirement saving, and financial choices by retirees. We survey research on liabilities, including mortgage choice, refinancing, and default, and household behavior in unsecured credit markets, including credit cards and payday lending. We then connect the household to its social environment, including peer effects, cultural and hereditary factors, intra-household financial decision-making, financial literacy, cognition, and educational interventions. We also discuss literature on the provision and consumption of financial advice.

Remarking on the discourse of pension management in Nigeria, scarce research attention can be traced to the understanding of pension management challenges and life after retirement experience through the prism of policy implication. To address this gap, the study assesses the pattern of pensioners’ life after retirement, the arrays of pension management challenges, and appropriate policy implications for effective pension management. A mixed-method research approach was employed. 345 retirees were randomly recruited and administered a questionnaire, and 18 purposively semi-structured interviews were conducted with the Federal Parastatals and Private Sector Pensioners Association of Nigeria. Quantitative data were analyzed with the frequency distribution and the Q-Q plot to determine the normal probability plot, while the NVivo (12) qualitative software was used for the identification of themes and sub-themes from the transcribed data. Findings revealed prolonged health challenges, poverty, and abrupt pension payment as life after retirement experiences. Verification bottleneck, poor monitoring and evaluation efforts, and administrative incompetency were issues around pension management challenges. The implication includes addressing political interference in pension management and administration, safeguarding retirees’ savings through legal commitment, and a call for employers’ contributions. The study recommends that the National Pension Commission become more responsive in its role of providing quality pension service, especially in terms of quality leadership, monitoring, and evaluation of Pension Fund Administrators.

This paper studies the large concentration of retirement behavior around statutory retirement ages, a puzzling stylized fact. To investigate this fact, I estimate bunching responses to 644 pension benefit discontinuities, using administrative data on the universe of German retirees. Financial incentives alone cannot explain retirement patterns, but there is a large direct effect of statutory retirement ages. I argue that the framing of statutory ages as reference points for retirement provides a plausible explanation. Simulations based on a model with reference dependence highlight that shifting statutory ages via pension reforms is an effective policy to influence retirement behavior.

The individual account-ba ...

The individual account-ba ...

Policies may change the incentives that allow cultural practices to persist. To test this, I study matrilocality and patrilocality, kinship traditions that determine daughters’ and sons’ post-marriage residences, and thus, which gender lives with and supports parents in their old age. Two separate policy experiments in Ghana and Indonesia show that pension policies reduce the practice of these traditions. I also show that these traditions incentivize parents to invest in the education of children who traditionally coreside with them. Consequently, when pension plans change cultural practices, they also reduce educational investment. This finding further demonstrates that policy can change culture.

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.

PurposeThis paper employs a comprehensive theoretical model of behavior to investigate the role of financial literacy in retirement savings behaviors: voluntary savings and investment plan change during COVID-19. Survey data from members of a large pension fund is combined with fund administrative data to empirically test the model.Design/methodology/approachFollowing preliminary surveys of members we developed and administered a survey to a representative sample of members, in Thailand’s Government Pension Fund (GPF). We matched survey responses to administrative sample data of member behavior before survey administration and six months following.FindingsWe establish that social norms are the strongest positive predictor of intention to perform both behaviors, and in turn behavior intention and perceived control over behavior are significant in explaining actual behavior. In addition, objective financial literacy is a significant positive predictor of both behaviors, notably commencing the behavior as well as a negative predictor of stopping.Research limitations/implicationsHaving collected data immediately prior to and in the early stages of COVID-19 allows an insight into behavior during a significant health, social and financial event. Future work can investigate the extent to which the event moderated results.Practical implicationsThe results suggest that financial institutions (e.g. pension funds) wanting to increase member savings and promote the role of investment strategy review may usefully focus on developing member behavioral intentions and improve financial literacy. We also note heterogeneity in results, which highlights the challenge faced by large institutions such as Thailand’s GPF to efficiently cater to a diverse membership.Originality/valueThe combination of survey data and fund administrative data allows both members’ intention to perform retirement savings behaviors and their actual behavior to be investigated. The timing of data collection provides valuable evidence of individuals’ savings intention and behavior during the onset of COVID-19 in a developing, upper middle-income country.

For insurance companies in Europe, the introduction of Solvency II leads to a tightening of rules for solvency capital provision. In life insurance, this especially affects retirement products that contain a significant portion of longevity risk (e.g., conventional annuities). Insurance companies might react by price increases for those products, and, at the same time, might think of alternatives that shift longevity risk (at least partially) to policyholders. In the extreme case, this leads to so-called tontine products where the insurance company’s role is merely administrative and longevity risk is shared within a pool of policyholders. From the policyholder’s viewpoint, such products are, however, not desirable as they lead to a high uncertainty of retirement income at old ages. In this article, we alternatively suggest a so-called tonuity that combines the appealing features of tontine and conventional annuity. Until some fixed age (the switching time), a tonuity’s payoff is tontine-like, afterwards the policyholder receives a secure payment of a (deferred) annuity. A tonuity is attractive for both the retiree (who benefits from a secure income at old ages) and the insurance company (whose capital requirements are reduced compared to conventional annuities). The tonuity is a possibility to offer tailor-made retirement products: using risk capital charges linked to Solvency II, we show that retirees with very low or very high risk aversion prefer a tontine or conventional annuity, respectively. Retirees with medium risk aversion, however, prefer a tonuity. In a utility-based framework, we therefore determine the optimal tonuity characterized by the critical switching time that maximizes the policyholder’s lifetime utility.