Understanding Pension Literacy

Microeconomic research generally assumes that workers are able to determine and follow optimal saving and retirement paths, and that to this end they have all the information necessary regarding the pension plan rules covering them. For instance, labor supply and saving outcomes at older ages are conventionally modeled by economists as depending on specific Social Security benefit and tax incentives that impart important notches and kinks in workers’ lifetime budget constraints. Most of these studies report finding quite small empirical behavioral elasticities, which may in fact be accurate measures of key behavioral parameters. On the other hand, these small elasticities could instead be the result of workers’ failure to understand how their pension systems actually work. This proposal seeks to evaluate worker knowledge of their pension systems by drawing on an invaluable new microeconomic survey of households linked with administrative records on actual accruals and benefit entitlements. In particular we will draw on a Chilean household survey known as the Encuesta de Protección Social (EPS). This survey, collected in both 2002 and 2004, queried respondents regarding demographic and household makeup, education and training, and most importantly for our purposes, it included a wide range of questions about peoples’ pension expectations and knowledge. To these files, we can link data from administrative records that we will use to compare participants’ self-reports with administrative information. We propose to use the project funding to prepare an exploratory report on initial findings, and to begin developing a range of econometric models of financial literacy using alternative identification strategies, including tests of the role of education in forming pension expectations.
Funded By: 
Funded By: 
P30 Pilots
Award Dates: 
July 1, 2005 - June 30, 2006
PARC Grant Year: 
Year 12