Preparation for Retirement, Financial Literacy and Cognitive Resources

50 Pages Posted: 4 Feb 2009

See all articles by Adeline Delavande

Adeline Delavande

New University of Lisbon - Faculdade de Economia

Susann Rohwedder

RAND Corporation

Robert J. Willis

University of Michigan at Ann Arbor - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: September 1, 2008

Abstract

Traditional economic models assume that individuals have full information and act perfectly rationally. However, we show that there is considerable variation in financial literacy in the population and propose modeling the acquisition of financial knowledge in a human capital production framework. The model makes several predictions, notably with respect to portfolio choice. For example, it helps explain household non-participation in the stock market for some fraction of the population, and it provides guidance about the share of risky assets to hold for other types of households. Estimation of the human capital production function for financial knowledge on data from the Cognitive Economics Survey yields results that are consistent with important features of the model.

Suggested Citation

Delavande, Adeline and Rohwedder, Susann and Willis, Robert J., Preparation for Retirement, Financial Literacy and Cognitive Resources (September 1, 2008). Michigan Retirement Research Center Research Paper No. 2008-190. Available at SSRN: https://ssrn.com/abstract=1337655 or http://dx.doi.org/10.2139/ssrn.1337655

Adeline Delavande (Contact Author)

New University of Lisbon - Faculdade de Economia ( email )

Campus de Campolide
Lisboa, 1099-032
Portugal
+35 1 21 380 16 00 (Phone)
+35 1 21 387 09 33 (Fax)

HOME PAGE: http://docentes.fe.unl.pt/~adeline/page2.html

Susann Rohwedder

RAND Corporation ( email )

P.O. Box 2138
1776 Main Street
Santa Monica, CA 90407-2138
United States

Robert J. Willis

University of Michigan at Ann Arbor - Department of Economics ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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