Financial Literacy and Financial Decision-Making at Older Ages

60 Pages Posted: 13 Oct 2020

See all articles by Joelle H. Fong

Joelle H. Fong

National University of Singapore

Benedict S. Koh

Singapore Management University - Lee Kong Chian School of Business

Olivia S. Mitchell

University of Pennsylvania - The Wharton School; University of Pennsylvania - The Wharton School, Pension Research Council; National Bureau of Economic Research (NBER)

Susann Rohwedder

RAND Corporation

Date Written: October 10, 2020

Abstract

How well older households manage their wealth holdings is an important determinant of their financial security during retirement, yet little is known about their financial decision-making and how this relates to their financial literacy. Our paper fills this gap by measuring financial literacy among older persons in the Singapore Life Panel and examining its association with timely credit card debt repayment, stock market participation, and age-based investment risk diversification. Most older respondents understand interest compounding and inflation, but fewer than half know about risk diversification. Almost all older credit card holders pay off their balances in a timely manner, but only 40% hold stocks; fewer than 18% with $1,000+ in assets hold portfolios consistent with age-appropriate investment glide paths. We further show that a one-unit higher financial literacy score is associated with a greater propensity to timely pay off credit card balances (1.5 ppts), to hold stock (8.3 ppts), and to follow an age-appropriate investment glide path (1.7 ppts).

Keywords: Retirement, financial literacy, credit card debt, stock market participation, life-cycle investment, household portfolio, risk diversification

JEL Classification: D14, E21, G5, G11, J32

Suggested Citation

Fong, Joelle H. and Koh, Benedict S. and Mitchell, Olivia S. and Rohwedder, Susann, Financial Literacy and Financial Decision-Making at Older Ages (October 10, 2020). Wharton Pension Research Council Working Paper No. 2020-24, Available at SSRN: https://ssrn.com/abstract=3710225 or http://dx.doi.org/10.2139/ssrn.3710225

Joelle H. Fong

National University of Singapore ( email )

469C BUKIT TIMAH ROAD, LKYSPP
SINGAPORE, Singapore 259771
Singapore

HOME PAGE: http://https://lkyspp.nus.edu.sg/our-people/faculty/fong-hung-yee-joelle

Benedict S. Koh

Singapore Management University - Lee Kong Chian School of Business ( email )

469 Bukit Timah Road
Singapore 912409
Singapore

Olivia S. Mitchell (Contact Author)

University of Pennsylvania - The Wharton School ( email )

Philadelphia, PA 19104-6365
United States

University of Pennsylvania - The Wharton School, Pension Research Council ( email )

3302 Steinberg Hall-Dietrich Hall
3620 Locust Walk
Philadelphia, PA 19104-6302
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Susann Rohwedder

RAND Corporation ( email )

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

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