Voluntary savings, financial behavior, and pension finance literacy: evidence from Chile

Abstract

Link to this article: http://journals.cambridge.org/abstract_S1474747212000340How to cite this article: OSCAR M. LANDERRETCHE and CLAUDIA MARTÍNEZ (2013). Voluntary savings, nancial behavior, and pension nance literacy: evidence from Chile. AbstractChileans have limited knowledge of the pension system, its rules, and the consequences involved in their personal decisions within it. Using a variation in the household compositionhaving a pensioner in the household -as an instrument, we show that Chileans with greater knowledge about the pension system are more likely to have additional financial savings, but not within the voluntary pension saving plans offered by the pension system. We find that getting one additional answer right in the pension literacy survey (out of six) generates approximately a 50 % additional chance that the individual will save at least in one of the surveyed periods, and a 25 % additional chance that the individual will save in both surveyed periods. We also test for evidence that pension literacy affects worker choices regarding their pension savings (what we call active financial behavior). We find that more literate workers are more likely to engage in pension fund type switching and that independent workers are more likely to voluntarily enter the pension system as affiliates if they have greater pension finance literacy. Getting one additional answer right in the pension literacy survey (out of six) increases the probability of pension fund type switching by 20 % and the probability of voluntary affiliation to the pension system of self-employed workers by 30 %.

Does Financial Literacy Moderate the Relationship among Demographic Characteristics and Financial Risk Tolerance? Evidence from Egypt

“…Interestingly, there was no gender disparity in financial knowledge in the East Germany. Moreover, Landerretche and Martínez (2013) showed that Chileans people with greater knowledge about their pension system were more likely to have additional financial savings. Add to that, they indicated that improving in the pension literacy survey had positive influence on the personal tendency to save.…”

Financial Literacy and Financial Behavior: Evidence from the Emerging Asian Middle Class

“…Levels of financial literacy in emerging markets are lower 5 than in industrialized countries (Hastings and Tejada-Ashton, 2008, Klapper and Panos, 2011, Beckmann, 2013, especially in rural areas. At the same time, studies in developing countries confirm that better financial literacy is positively related to retirement planning (Klapper and Panos, 2011), to greater participation in financial markets, to greater use of formal sources of borrowing (Klapper et al, 2013), to higher voluntary savings (Landerretche and Martinez, 2013) and to better diversification (Beckmann, 2013).…”

Is financial literacy an economic good?

“…While the different empirical approaches used to measure people's fl have come in for criticism, it can be argued that the levels of fl found in the general population are substantially lower than they should be (Hogarth and Hilgerth, 2002;Miles, 2004;Christelis, Jappelli and Padula, 2005;Lusardi andMitchell, 2007a and2007b;Lusardi, Mitchell and Curto, 2010;Landerretche and Martínez, 2011;Van Rooij, Lusardi and Alessie, 2011;Stone and Neumann, 2012, among others). This has consistently been found to be the case in all the countries for which data are available, and fl levels are particularly low among the poorer segments of the population and among women.…”

“…Chan and Huff (2003) find that responses regarding self-reported knowledge provide supplementary data about the importance that people attribute to the information referred to in the question and about their degree of assurance in that regard. Landerretche and Martínez (2011) suggest that, in order to avoid overestimating the parameters in question, the results for these types of responses should be regarded as the upper limit for accurate results when the time comes to interpret them, with the assumption being that the actual value is lower.…”