Financial Literacy, Retirement Planning and Household Wealth

Authors


  • Corresponding author: Maarten C.J. van Rooij, Economics & Research Division, De Nederlandsche Bank, P.O. Box 98, 1000 AB, Amsterdam. Email: m.c.j.van.rooij@dnb.nl.

  • We thank our editor, Rachel Griffith, and two anonymous referees for very helpful comments. We also thank Carol Bertaut, Johannes Binswanger, Thomas Crossley, Michael Haliassos, Lex Hoogduin, Peter Schotman, Federica Teppa, Joachim Winter and Peter van Els for their advice and comments and Audrey Brown for excellent editorial assistance. We thank the staff of CentERdata and, in particular, Corrie Vis for their assistance with the survey and the field work. The views expressed in this article are those of the authors and do not necessarily reflect the views of De Nederlandsche Bank.

Abstract

Relying on comprehensive measures of financial knowledge, we provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. We discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning and the development of a savings plan has been shown to boost wealth.

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