Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands
Rob J.M. Alessie
University of Groningen; Netspar; Tinbergen Institute; Tilburg University - Center for Economic Research (CentER); University of Utrecht - Utrecht University School of Economics
Maarten Van Rooij
De Nederlandsche Bank; Netspar
Dartmouth College - Department of Economics; National Bureau of Economic Research (NBER)
March 1, 2011
De Nederlandsche Bank Working Paper No. 289
We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees’ expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variation for financial conditions and financial knowledge of relatives, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.
Number of Pages in PDF File: 36
Keywords: Financial Sophistication, Retirement Planning, Retirement Expectations
JEL Classification: D91, G11, D80working papers series
Date posted: October 29, 2011
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