How Overconfident Financial Knowledge Hinders Retirement Planning? Mediating Analysis and Heterogeneity of Retirement Funding Sources

Under the background of general financial knowledge confidence and insufficient retirement planning, this study investigates the relationship between overconfident financial knowledge and consumer retirement planning. Using data from the National Financial Capability Study, this study employs probit regressions and finds that consumers with overconfident financial knowledge are less likely to have retirement planning, that is, contribute to retirement accounts regularly. This study further explores the mediators in this relationship and concludes that consumers who are overconfident in their financial knowledge tend to be more preference to risk, fail to make ends meet, and do not care about their financial situation, therefore are less likely to plan for retirement. Furthermore, compared to retirement accounts such as 401(k) that are through an employer, consumers with overconfident financial knowledge are more willing to engage in those such as IRA that are not through an employer. This study also finds that underconfident financial knowledge, another type of incorrect subjective evaluation of financial knowledge, is positively associated with retirement planning. Based on these findings, this study recommends policymakers reduce financial knowledge overconfidence, guide individuals to regularly pay attention to their financial situation, and encourage employers to actively participate in retirement plans. JEL Classification: D12, N30, D80, D91.