Content area
Full text
Abstract: Using representative survey data from the Swiss population, we show that pension literacy is different from financial literacy. While both literacy measures are higher among men than women, we observe that financial literacy is largely driven by education, whereas pension literacy increases with age and income. Motivated by the differences between both literacy measures, we extend past research on the effect of culture on financial and pension literacy, an area that has not been considered in a pension context. We identify a significant and robust heterogeneity in pension literacy depending on language regions. The magnitude of the language association is high compared to other control variables. A mediation analysis attributes differences in pension literacy to financial risk preferences and differences in financial literacy to time preferences across cultural groups. [Key words: Pension literacy, financial literacy, culture.]
INTRODUCTION
We investigate the relationship between pension literacy and financial literacy and discuss the role of culture in pension literacy. For this purpose, we collect representative survey data of the working population in Switzerland. Our data includes information on pension literacy and financial literacy, preferences, and socio-demographic and socio-economic background. We first compare pension literacy and financial literacy, and- motivated by observed differences-we subsequently investigate pension literacy.
Our focus is on the cultural distribution of pension literacy, a domain that has been predominantly investigated regarding financial behavior (e.g., see Haliassos, Jansson, and Karabulut, 2017) and financial literacy (e.g., see Brown, Henchoz, and Spycher, 2018), but has so far not been considered in a pension context. We show that pension literacy is different from financial literacy and that more research on pension literacy is neces-sary. Pension literacy is associated with culture, gender, and income, calling for targeted pension literacy programs that reflect this heterogeneity.
Pension literacy and retirement planning are economically highly relevant elements within the insurance domain3 and are currently subject to substantial changes worldwide. Pension and social security systems are under immense pressure. Pension schemes face demographic challenges in aging populations. Additionally, the ongoing period of low-interest rates undermines interest guarantees in capital-funded pension programs. In light of these developments, pension system reforms cause a setback of expected wealth at the time of retirement and require an increasing contri-bution of individual savings to overall retirement savings....