Financial Sophistication in the Older Population
This paper examines data on financial sophistication among the U.S. older population, using a special-purpose module implemented in the Health and Retirement Study. We show that financial sophistication is deficient for older respondents (aged 55+). Specifically, many in this group lack a basic grasp of asset pricing, risk diversification, portfolio choice, and investment fees. Subpopulations with particular deficits include women, the least educated, persons over the age of 75, and non-Whites. In view of the fact that people are increasingly being asked to take on responsibility for their own retirement security, such lack of knowledge can have serious implications.
The research reported herein was conducted pursuant to grants from the U.S. Social Security Administration (SSA) to the Financial Literacy Center and the Michigan Retirement Research Center funded via the Financial Literacy Research Consortium and the Retirement Research Consortium. Additional support was provided by the Pension Research Council and Boettner Center at the Wharton School of the University of Pennsylvania, and the FINRA Investor Education Foundation. We are grateful to Richard Derrig for sharing his PRIDIT code. Opinions and errors are solely those of the authors and not of the institutions with which the authors are affiliated The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Olivia S. Mitchell
Mitchell serves as a Trustee for the Wells Fargo Advantage Funds. She has also received more than $10,000 from the TIAA-CREF Institute for research studies on retirement security.