Wealthy or Wise: How Knowledge Influences Retirement Savings Behavior

Wealthy or Wise: How Knowledge Influences Retirement Savings Behavior

Richard Chard, David Rogofsky, and Joanne Yoong

Journal paper

Journal of Behavioral and Social Sciences

2017

We used the nationally representative Understanding America Study in order to evaluate what people know about Social Security benefits and how this affects retirement savings and planning. Our findings showed that, while Social Security benefit literacy is generally high, important disparities in program knowledge remain within the general population, including gaps according to wealth, age, and ethnicity. We found that Social Security benefit literacy matters more than demographic factors for planning and saving behavior. However, when translating behavior into outcomes, benefit literacy is less predictive, suggesting that other aspects of financial capability, including the ability to save and moderate individual choices, may play a part. While being knowledgeable is more predictive of individual choice, being wealthy (or having more education) may still play a larger role in determining retirement preparedness. Finally, the findings showed that individuals who perceive Social Security as inadequate in terms of replacement income are more likely to be saving on their own for retirement.