Abstract. Pension reforms in many developed countries make individuals shoulder a bigger share of longevity and income risks. The desired response is that individuals accumulate private assets for retirement. Whether this actually takes place, is of paramount relevance for scientists and policy makers. We take Germany as an example: Twenty years of pension reform have transformed the monolithic German pension system into a multipillar system. Formerly generous public pension benefits are gradually being reduced, whereas substantial incentives are granted to occupational and private saving schemes. Has this transition worked out? We survey the reform steps and households' reactions: How did individuals adjust their labor market behavior? How did private and occupational pension plans take off? How do behavioral adjustments vary in the population? Most Germans adapted to the new situation. Both actual and expected retirement decisions changed and the share of households without supplementary pensions decreased from 73% to 39% in little more than a decade. This is a remarkable success. Nonetheless, households with low education, low income and less financial education did neither adjust their retirement behavior nor pick up supplementary pension plans and are thus likely to face difficulties in bridging the gap arising in future pension income.

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Abstract:We use the German re-unification as a natural experiment to understand drivers of financial literacy accumulation. With the transformation from a planned to a market-based economy in 1990, the incentives to invest in financial literacy were changed exogenously for East Germans and remained the same for West Germans. Our results show that even 20 years after reunification there is evidence for a significant financial literacy gap between East and West. While some groups, for instance women and those who have migrated from the East to the West, have mastered to catch up with their West German peers, others did not. Differences in financial literacy are present across all educational groups and at the top as well as the bottom of the income distribution. Based on models which account for factors that are commonly integrated in financial literacy theory, we decompose the financial literacy gap. Most of the gap remains unexplained. Thus, an extension of empirical and theoretical models that allow for the inclusion of differences in attitudes and values might be crucial to improve our understanding of financial literacy acquisition.

Leiter des Survey of Health, Ageing and Retirement in Europe (SHARE) und Direktor des SHARE-ERIC.