Thursday, August 21, 2014

Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs

Abstract Economists are beginning to investigate the causes and consequences of financial

illiteracy to better understand why retirement planning is lacking and why so many

households arrive close to retirement with little or no wealth. Our review reveals that

many households are unfamiliar with even the most basic economic concepts needed to

make saving and investment decisions. Such financial illiteracy is widespread: the young

and older people in the United States and other countries appear woefully under-informed

about basic financial computations, with serious implications for saving, retirement

planning, mortgages, and other decisions. In response, governments and several nonprofit

organizations have undertaken initiatives to enhance financial literacy. The experience of

other countries, including a saving campaign in Japan as well as the Swedish pension

privatization program, offers insights into possible roles for financial literacy and saving

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