Does Financial Sophistication Matter in Retirement Preparedness of U.S. Households? Evidence from the 2010 Survey of Consumer Finances

Consumer Interests Annual, Volume 59, 2013

4 Pages Posted: 10 Jul 2013

See all articles by Kyoung Tae Kim

Kyoung Tae Kim

University of Alabama

Sherman D. Hanna

Ohio State University (OSU)

Date Written: July 9, 2013

Abstract

We extend previous studies of retirement adequacy by testing the effect of financial sophistication on projected retirement adequacy. In an analysis of the 2010 Survey of Consumer Finances (SCF) dataset, we found that only 42% of households are adequately prepared for retirement compared to 58% in 2007. We tested the effects of three proxies for financial sophistication based on previous studies: (1) Education, (2) Use of financial planning service, and (3) Understanding of the SCF survey questions. Our multivariate analysis shows that households with college education are more likely to have an adequate retirement than those with less than high school. Households using a financial planner are more likely to have an adequate retirement than non-user households. However, good understanding of SCF survey is not significantly related to the likelihood of having an adequate retirement.

Keywords: Financial Sophistication, Retirement Adequacy, 2010 Survey of Consumer Finances (SCF)

JEL Classification: D14, D91, E21, J14

Suggested Citation

Kim, Kyoung Tae and Hanna, Sherman D., Does Financial Sophistication Matter in Retirement Preparedness of U.S. Households? Evidence from the 2010 Survey of Consumer Finances (July 9, 2013). Consumer Interests Annual, Volume 59, 2013. Available at SSRN: https://ssrn.com/abstract=2291600

Kyoung Tae Kim

University of Alabama ( email )

312 Adams Hall
Tuscaloosa, AL 35487-0001
United States

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

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