Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/57373
Authors: 
van Rooij, Maarten
Lusardi, Annamaria
Alessie, Rob J. M.
Year of Publication: 
2011
Series/Report no.: 
CFS Working Paper 2011/21
Abstract: 
There is ample empirical evidence documenting widespread financial illiteracy and limited pension knowledge. At the same time, the distribution of wealth is widely dispersed and many workers arrive on the verge of retirement with few or no personal assets. In this paper, we investigate the relationship between financial literacy and household net worth, relying on comprehensive measures of financial knowledge designed for a special module of the DNB (De Nederlandsche Bank) Household Survey. Our findings provide evidence of a strong positive association between financial literacy and net worth, even after controlling for many determinants of wealth. Moreover, we discuss two channels through which financial literacy might facilitate wealth accumulation. First, financial knowledge increases the likelihood of investing in the stock market, allowing individuals to benefit from the equity premium. Second, financial literacy is positively related to retirement planning, and the development of a savings plan has been shown to boost wealth. Overall, financial literacy, both directly and indirectly, is found to have a strong link to household wealth.
Subjects: 
Financial Education
Savings and Wealth Accumulation
Retirement Preparation
Knowledge of Finance and Economics
Overconfidence
Stock Market Participation
JEL: 
D91
D12
J26
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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