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Understanding Pension Literacy

Principal Investigator
Olivia Mitchell
Aims

To evaluate what Chileans do and do not know about their retirement system after two decades of the new program, and, to the extent that current participants and potential participants prove under- or mis-informed, to learn what aspects of the plan seem particularly difficult to fathom and what might be done to correct the lack of information and/or misinformation.

Abstract

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
Mellon
P30 Pilots
Award Dates
July 1, 2005 - June 30, 2006

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The Population Studies Center (PSC) at the University of Pennsylvania (Penn) was founded in 1962 and stands as an international leader in research and training on the dynamic structure, organization, and health and well-being of human populations. The services that PSC provides have been funded by infrastructure grants awarded by the Population Dynamics Branch at Eunice Kennedy Shriver National Institute of Child Health and Human Development (NICHD) since 1978. The center and its associates are also supported by research grants and contracts awarded by federal agencies including the National Institutes of Health and the National Science Foundation and by private foundations. Penn’s School of Arts and Sciences is the administrative home of the PSC and provides generous dedicated support to the center.

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