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Introduction
Rising life expectancies and falling birth rates are straining employer-sponsored pensions and Social Security systems around the world. In response, a number of countries have transformed their retirement schemes by remaking their traditional defined benefit (DB) pensions into individual-account defined contribution (DC) schemes. This transformation shifts many of the decisions about financing retirement away from institutions - firms and governments - toward individuals, imposing on workers the responsibility to save, invest, and spend wisely over the life cycle. In some ways, this transition has wrought change for the better. For instance, when the labor force is mobile, pensions must be portable - and DC plans are more flexible than conventional DB plans, which discourage labor mobility. Yet DC flexibility also presents the possibility that individuals might not do the right thing: they can undersave, fail to invest wisely, and run out of money in old age due to longevity risk (Poterba et al., 2008; Mitchell, 2011). For this reason, the new financial era imposes a much heavier burden on workers and their households to become financially literate - to learn how to process economic information and make informed decisions about household finances.
In other work, we have shown that financial literacy is closely tied to retirement planning and retirement wealth accumulation (Behrman et al., 2010; Lusardi, 2009; Lusardi and Mitchell, 2011). Yet many people are woefully unaware of basic economics and finance, shortfalls that may lead them to make serious and often irreversible mistakes. Research on these topics to date has focused on the level and extent of financial illiteracy in the USA (Lusardi and Mitchell, 2007a, b, 2008a, b, 2011). In this special issue of the Journal of Pension Economics and Finance, we report on an international project on financial literacy patterns in eight countries totally, seven of which having recently followed the lead of the USA by adding financial literacy questions to national surveys - questions that have been modeled on three questions originally designed for the Health and Retirement Study (HRS). In what follows, we discuss how to measure financial literacy, as well as the links between financial literacy and retirement planning. We also draw out key lessons and research...