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The association between pension plan types and financial literacy in later life

The association between pension plan types and financial literacy in later life
The association between pension plan types and financial literacy in later life
In the U.S., employers are increasingly offering defined contribution (DC) pension plans in place of defined benefit (DB) pension plans to their employees. Yet, research shows that many older employees are financially illiterate and unprepared to manage their pension funds, especially when confronted with a wide variety of financial instruments. The central thesis of this study is that participating in DC plans provides the motivation and opportunity for employees to educate themselves to maximize their pension plan returns. The same motivation is not present for employees participating in DB plans. Cross-sectional analyses of the 2010 Health and Retirement Study (n=1,281) investigated the association between different types of pension plans and multiple indicators of financial literacy. We also examined the moderating effect of gender. Regression results showed respondents with DC plans were more likely to correctly answer a set of financial literacy questions, in comparison with respondents with DB plans. Men with both DC and DB plans scored significantly higher on a financial literacy index than women with both plans, relative to respondents with DB plans only. Results from this study suggested that traditional financial education programs may not be the only means of achieving financial literacy. Our conclusion is that older adults have higher financial literacy if they were incentivized by participation in DC plans to manage financial resources, including deciding where to invest pension funds. This is especially important as research demonstrates that the effectiveness of traditional financial education programs is limited
2399-5300
1168
Li, Yang
4789a098-30e5-4197-8082-e467601b7a52
Burr, Jeff
c3114948-d8c8-4514-8508-daacd20984b3
Miller, Edward
db0cff51-748f-4eec-bc8f-fd880d12c9ee
Li, Yang
4789a098-30e5-4197-8082-e467601b7a52
Burr, Jeff
c3114948-d8c8-4514-8508-daacd20984b3
Miller, Edward
db0cff51-748f-4eec-bc8f-fd880d12c9ee

Li, Yang, Burr, Jeff and Miller, Edward (2017) The association between pension plan types and financial literacy in later life. Innovation in Aging, 1 (S1), 1168. (doi:10.1093/geroni/igx004.4258).

Record type: Article

Abstract

In the U.S., employers are increasingly offering defined contribution (DC) pension plans in place of defined benefit (DB) pension plans to their employees. Yet, research shows that many older employees are financially illiterate and unprepared to manage their pension funds, especially when confronted with a wide variety of financial instruments. The central thesis of this study is that participating in DC plans provides the motivation and opportunity for employees to educate themselves to maximize their pension plan returns. The same motivation is not present for employees participating in DB plans. Cross-sectional analyses of the 2010 Health and Retirement Study (n=1,281) investigated the association between different types of pension plans and multiple indicators of financial literacy. We also examined the moderating effect of gender. Regression results showed respondents with DC plans were more likely to correctly answer a set of financial literacy questions, in comparison with respondents with DB plans. Men with both DC and DB plans scored significantly higher on a financial literacy index than women with both plans, relative to respondents with DB plans only. Results from this study suggested that traditional financial education programs may not be the only means of achieving financial literacy. Our conclusion is that older adults have higher financial literacy if they were incentivized by participation in DC plans to manage financial resources, including deciding where to invest pension funds. This is especially important as research demonstrates that the effectiveness of traditional financial education programs is limited

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More information

Published date: 1 July 2017
Additional Information: Session 4540 (Poster): Retirement Processes and Policies
Venue - Dates: 21st International Association of Gerontology and Geriatrics (IAGG) World Congress, , San Francisco, United States, 2017-07-23 - 2017-07-27

Identifiers

Local EPrints ID: 473151
URI: http://eprints.soton.ac.uk/id/eprint/473151
ISSN: 2399-5300
PURE UUID: 3e6b7ccd-1c5d-4e83-9dfc-bfaf6c6bc2a2
ORCID for Yang Li: ORCID iD orcid.org/0000-0003-1051-4788

Catalogue record

Date deposited: 10 Jan 2023 18:49
Last modified: 17 Mar 2024 00:07

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Contributors

Author: Yang Li ORCID iD
Author: Jeff Burr
Author: Edward Miller

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