Precautionary Savings, Retirement Planning and Misperceptions of Financial Literacy
43 Pages Posted: 9 Dec 2014 Last revised: 17 Jul 2016
Date Written: April 28, 2016
We measure financial literacy among LinkedIn members, complementing standard questions with additional questions that allow us to gauge self-perceptions of financial literacy. Average financial literacy is surprisingly low given the demographics of our sample: fewer than two-thirds of CFOs, CEOs, and COOs complete the test correctly. Financial literacy, precautionary savings and retirement planning are positively correlated, but this is mostly driven by perceived, not actual, literacy: controlling for self-perceptions, actual literacy has low predictive power. Perceptions drive decision-making among low-literacy respondents and are associated with mistaken beliefs about financial products and less willingness to accept financial advice.
Keywords: Financial literacy, optimism, overconfidence
JEL Classification: G18, D18
Suggested Citation: Suggested Citation