Boosting Financial Literacy to Improve Retirement Planning
Annamaria Lusardi and Olivia S. Mitchell’s article analyzes the relationship between financial literacy, as measured by the understanding of retirement-relevant concepts, and retirement planning, which is a key determinant of savings and of wealth accumulation. It finds that both financial literacy and retirement planning are lacking in the U.S. population, even among those who are 10 to 15 years away from retirement. This finding is important because financial literacy is a key driver of retirement planning and, by extension, of financial security.
Today’s retirement landscape has seen the phasing out of employer-provided defined-benefit plans in favor of employee-managed defined-contribution plans such as 401(k)s. This change means that employees are more responsible than ever for planning for their retirements and making complex financial decisions about current and future consumption, yet many employees spend little time thinking about retirement. Using the data from an internet-based survey of adults that follows respondents over time in 2009, this article finds that about 30% of respondents have given little or no thought to retirement. And this statistic obscures disparities among demographic groups.