Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands
33 Pages Posted: 6 Jun 2011 Last revised: 2 Apr 2023
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Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands
Financial Literacy, Retirement Preparation and Pension Expectations in the Netherlands
Date Written: June 2011
Abstract
We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, significantly more individuals planned for their retirement in 2010. At the same time, employees' expectations about the level of their pension income are high compared to what retirement plans may realistically provide. However, financially knowledgeable employees report lower expected replacement rates and acknowledge higher levels of uncertainty. Moreover using instrumental variables estimates for financial knowledge, we find a positive effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that financial knowledge has a causal impact on retirement planning. Our findings suggest that the formation of pension expectations might be an important mechanism contributing to the impact of financial literacy on planning.
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