How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors / Justine S. Hastings, Olivia S. Mitchell.

Format:

Book

Author/Creator:

Hastings, Justine S.

Contributor:

National Bureau of Economic Research.

Mitchell, Olivia S.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16740.

NBER working paper series no. w16740

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2011.

Summary:

Two competing explanations for why consumers have trouble with financial decisions are gaining momentum. One is that people are financially illiterate since they lack understanding of simple economic concepts and cannot carry out computations such as computing compound interest, which could cause them to make suboptimal financial decisions. A second is that impatience or present-bias might explain suboptimal financial decisions. That is, some people persistently choose immediate gratification instead of taking advantage of larger long-term payoffs. We use experimental evidence from Chile to explore how these factors appear related to poor financial decisions. Our results show that our measure of impatience is a strong predictor of wealth and investment in health. Financial literacy is also correlated with wealth though it appears to be a weaker predictor of sensitivity to framing in investment decisions. Policymakers interested in enhancing retirement wellbeing would do well to consider the importance of these factors.

Notes:

Print version record

January 2011.