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How Financial Literacy and Impatience Shape Retirement Wealth and Investment Behaviors
Justine Hastings1, Olivia S Mitchell2
1Brown University and NBER, Professor of Economics and International and Public Affairs, Box B, 64 Waterman Street, Providence, RI 02912.
Journal of Pension Economics & Finance
|April 9, 2021
Summary
Consumer financial decisions are influenced by both financial literacy and impatience. Impatience strongly predicts wealth and health investment, while financial literacy has a weaker impact on investment choices. Both factors are crucial for retirement planning.
Area of Science:
- Behavioral Economics
- Consumer Finance
Background:
- Consumers often make suboptimal financial decisions.
- Two primary explanations are financial illiteracy and impatience (present-bias).
Purpose of the Study:
- To investigate the relationship between financial literacy, impatience, and poor financial decision-making using experimental data from Chile.
- To determine the relative impact of these factors on financial outcomes.
Main Methods:
- Utilized experimental evidence from Chile.
- Measured financial literacy and impatience.
- Assessed their correlation with wealth and investment decisions.
Main Results:
- Impatience was a strong predictor of an individual's wealth and investment in health.
- Financial literacy was correlated with wealth but was a weaker predictor of sensitivity to framing in investment decisions.
Conclusions:
- Both financial literacy and impatience are important factors influencing financial decision-making.
- Policymakers should consider both elements when designing interventions to improve retirement wellbeing.
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