Does Financial Sophistication Matter in Retirement Preparedness?

Journal of Personal Finance, 14 (2), 9-20, 2015

12 Pages Posted: 30 Aug 2015 Last revised: 8 Oct 2015

See all articles by Kyoung Tae Kim

Kyoung Tae Kim

University of Alabama

Sherman D. Hanna

Ohio State University (OSU)

Date Written: August 26, 2015

Abstract

Lack of financial sophistication has been suggested as a cause of retirement plan failure. We extend previous studies of retirement adequacy by testing the effect of financial sophistication proxies on projected retirement adequacy, using the 2010 Survey of Consumer Finances (SCF) dataset. We found that only 44% of households with a fulltime head aged 35 to 60 are adequately prepared for retirement in 2010, compared to 58% in 2007. Our multivariate analysis shows that college educated households are more likely to have an adequate retirement than those with less than a high school degree. Households using a financial planner are more likely to have an adequate retirement than those that do not use one.

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? (August 26, 2015). Journal of Personal Finance, 14 (2), 9-20, 2015. Available at SSRN: https://ssrn.com/abstract=2651293

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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