Project in detail

Financial Literacy and Private Pension Provision

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The objective of this project is to determine the relationship between financial literacy and savings behavior for retirement. State-subsidized Riester pensions prove to be particularly beneficial for individuals with a lower income and for families with children. Lower income groups including single mothers have been identified to be at risk of low financial literacy. Thus, the central question arising is: Is the Riester scheme successful at targeting individuals at risk of low financial literacy and low retirement savings in order for them to provide privately for their old age income? Hypotheses regarding the relationship between financial literacy and private old age provision and Riester savings in particular have been developed. In the empirical part of the paper, the relation between financial knowledge and ownership of state-subsidized Riester and other non-subsidized private old age savings contracts is analyzed. The analysis is based on SAVE 2009. Financial literacy is positively related to private pension saving behavior. This is true for standard private pensions as well as state-subsidized Riester contracts. Levels of private pension coverage are particularly low among individuals in the lowest income quartile, even though it is they that would profit most from the state subsidies. At the same time they show the lowest levels of financial literacy. The results have been summarized in a working paper. For a revision of the paper precise subsidy rates have been calculated and the analysis will be refined.

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