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Financial literacy, trust and retirement planning

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  • RICCI, ORNELLA
  • CARATELLI, MASSIMO

Abstract

We study the complex relationship between financial literacy, retirement planning and trust in financial institutions, using data from the 2010 Bank of Italy Survey on Household Income and Wealth. The impact of financial literacy on retirement planning is a well-established issue in the existing empirical literature; our main contribution is proving that financial knowledge not only impacts retirement planning, but also the decisions of entering a private pension scheme (or devoting the severance pay to a private pension scheme). Adding the consideration of trust poses serious econometric concerns, since both financial literacy and trust in financial institutions are likely to be endogenous and the presence of two endogenous regressors renders the identification of causality very difficult. Our solution is to keep only financial literacy as endogenous and include in our models an exogenous regional indicator of social capital (similar to the one adopted by Guiso et al., 2004), as a proxy for the level of trust between the counterparts of a financial contract in each geographical area. Our main findings show that trust has a positive influence on both the decisions to enter a private pension scheme or to devote the severance pay to a private pension scheme.

Suggested Citation

  • Ricci, Ornella & Caratelli, Massimo, 2017. "Financial literacy, trust and retirement planning," Journal of Pension Economics and Finance, Cambridge University Press, vol. 16(1), pages 43-64, January.
    • Handle: RePEc:cup:jpenef:v:16:y:2017:i:01:p:43-64_00
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    Cited by:

    1. Abedalqader Rababah & Sarfaraz Javed & Azam Malik, 2022. "Is Social Capital a Key Factor to enhance Firm’s Performance via Manager’s Intangible Capabilities?," IIM Kozhikode Society & Management Review, , vol. 11(2), pages 207-221, July.
    2. Guo, Qiyang & Qian, Yuting & Tan, Weiqiang & Xie, Zhiju, 2024. "Does financial literacy drive entrepreneurship in rural China?," Finance Research Letters, Elsevier, vol. 61(C).
    3. Qian, Yuting & Tan, Weiqiang & Wu, Jingbo, 2024. "Household financial literacy and retirement planning in rural China," International Review of Financial Analysis, Elsevier, vol. 93(C).
    4. Heejung Park & William Martin, 2022. "Effects of risk tolerance, financial literacy, and financial status on retirement planning," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 27(3), pages 167-176, September.
    5. Ahmad Ghadwan & Wan Marhaini Wan Ahmad & Mohamed Hisham Hanifa, 2022. "Financial Planning for Retirement: The Mediating Role of Culture," Risks, MDPI, vol. 10(5), pages 1-20, May.
    6. Azra Zaimovic & Anes Torlakovic & Almira Arnaut-Berilo & Tarik Zaimovic & Lejla Dedovic & Minela Nuhic Meskovic, 2023. "Mapping Financial Literacy: A Systematic Literature Review of Determinants and Recent Trends," Sustainability, MDPI, vol. 15(12), pages 1-30, June.
    7. López, Fernando & Rosas, Guillermo, 2022. "COVID-19 and attitudes towards early withdrawal of pension funds: The role of trust and political ideology," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    8. Marotta, Giuseppe, 2020. "Behind the success of dominated personal pension plans: sales force and financial literacy factors," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(4), pages 532-547, October.
    9. Philip Maximilian Linhart & Olaf Stotz, 2022. "Which factors support trust in the recommendation process of pension products? Trust and pension products," Journal of Financial Services Marketing, Palgrave Macmillan, vol. 27(4), pages 322-334, December.
    10. Koh, Benedict S.K. & Mitchell, Olivia S. & Fong, Joelle H., 2021. "Trust and retirement preparedness: Evidence from Singapore," The Journal of the Economics of Ageing, Elsevier, vol. 18(C).
    11. Edouard Ribes, 2022. "What are the financial implications of an ageing population for European citizens?," Working Papers hal-03118783, HAL.
    12. Floor Goedkoop & Madi Mangan & Mauro Mastrogiacomo & Stefan Hochguertel, 2023. "Trust in the financial performance of pension funds, public perception, and its effect on participation in voluntary pension saving plans," Working Papers 783, DNB.

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