Leader: Mario Padula (UNIVE); Other collaborator(s): Emilio Russo (UNICAL)
Designing and estimating financial literacy indexes for older people. Relating financial knowledge to the pension gap and to the evidence of a forward looking behaviour (comparing younger and older generations). Knowledge of pensions according to the occupational and generational characteristics: the role of social partnership and representation of workers. Relating financial knowledge and availability of information to the life-cycle model of saving.
Brief description of the activities and of the intermediate results:
Within this framework, a dynamic stochastic model of saving, portfolio choice and retirement is provided.
Relying on the exogenous variation from a sequence of Italian pension reforms, the model is estimated, and alternative pension policies are drawn. The validated model predicts substantial social security wealth effects on retirement, with the offset between public pension wealth and private savings softened when households can adjust their retirement decisions.
Main policy, industrial and scientific implications
The results obtained provide substantial suggestions on the selection of pension funds, taking into account the influence of information and communication technologies.
Brief description of the activities and of the intermediate results:
Spatial inequalities and gender differences are the main drivers of unequal ageing.
1. Preliminary estimates show marked geographical patterns, which may contribute significantly to differences in the access to services for older people, suggesting differential resilience to unexpected shocks.
2. The gender gap in mean retirement income increases across cohorts and with age, but the relative gender gap decreases and survivor’s benefits reduce the gap remarkably, especially late in life: hence it is important to consider the whole “welfare package” within the family.
Brief description of the activities and of the intermediate results:
Designing and estimating financial literacy indexes for older people. Provide a computational framework to quantitatively assess the distributional effects of alternative pension policies on labor supply, including retirement, and wealth accumulation decisions, based on a dynamic stochastic life-cycle model and on a sufficiently rich characterization of pension institutions.
Main policy, industrial and scientific implications:
The results obtained in the Task 5.1 have an impact on the research goals of the Task 5.2, considering the effect of information and communication technologies on the choice of pension funds. In addition, the team is providing tools to quantify the extent of pension gaps, by solving, simulating and estimating a fully-fledged life cycle model of saving. Furthermore, with the aim of building financial (and pension) literacy measures and interventions, the team is in the process of running a field experiment on the impact of information on pension matters on saving attitudes. At the intersection between Task 5.1 and 5.2 the team is looking at how the provision of financial information by pension funds to members affects the members’ financial investment decision.
Brief description of the activities and of the intermediate results:
The research on Tasks 5.1, 5.3, and 5.4 revealed that achieving greater financial and demographic literacy is crucial for the correct implementation of innovative products, as well as in the context of gender mainstreaming and gender equality policies.
Main policy, industrial and scientific implications:
Demonstrate how financial and demographic culture can improve individuals' understanding and choices, and promote the adoption of an inclusive perspective in the implementation of social development policies that aim to improve the well-being of individuals in their third age.
Brief description of the activities and of the intermediate results:
Financial literacy, and in general the ability to assess economic variables and their dynamics, is a basic requirement for rational decision making. In WP5 we want to understand if individuals have enough resources for their old age or if unequal ageing is caused also by lack of a forward-looking behaviour. In a life cycle perspective these issues have to be addressed across different generations, because accumulation of resources – either in the form of a pension or as private saving – has to start at young ages. For this reason we built an “instrument” (a survey plus field experiment) which we started testing on young people.
An online survey was conducted on a sample of Italian university students. As a pilot phase of a broader research initiative, the study aims to assess the functionality of the questionnaire and evaluate the effects of an informational intervention on two key aspects: (i) individual expectations regarding future pension outcomes— i.e., the expected retirement age and replacement rate—and (ii) the propensity to enroll in a voluntary supplementary pension scheme. Along these two dimensions the standard “financial literacy” questions were asked.
Participants were randomly assigned to one of three groups: a treatment group, which received detailed information about the rules governing public pension calculations, and two placebo groups, which received unrelated content or materials only marginally related to the pension topic.
Preliminary findings suggest that, on average, respondents anticipate receiving their first pension at a relatively advanced age and they hold a pessimistic outlook regarding their expected replacement rate. In terms of basic financial literacy, most respondents showed an understanding of concepts like inflation and risk diversification. Instead, only about half demonstrated familiarity with compound interest.
The informational intervention did not produce statistically significant effects on expectations regarding retirement age. However, it did appear to lead to an upward revision of the expected replacement rate relative to the placebo groups. No sizeable effects were observed for participants’ intentions to invest in a supplementary pension plan.
In the next steps, after adjusting the questionnaire and refining the instrument, we will launch the survey and experiment on a much wider population of young people, while starting to design a similar instrument for older people, where the risks-domain has to be framed differently.
Main policy, industrial and scientific implications:
The findings suggest that informational interventions may enhance forward-looking behavior among young adults. By enabling individuals to model the consequences of their retirement-related decisions and saving strategies, such interventions can support more informed financial planning based on a clear understanding of pension system rules. Such behaviors may be further reinforced in older age through targeted public initiatives, especially for individuals with limited financial literacy or restricted access to professional financial advice.
The questionnaire will be adapted for older individuals who are still in the workforce or approaching retirement age, and support an intergenerational comparison of pension-related knowledge and forward-looking behavior.
Brief description of the activities and of the intermediate results:
Pension legislation is often complex, which makes the preparation for retirement hard. More knowledgeable individuals are likely to make better choices, but knowledge is costly (and more so the more complex pension legislation is). We define pension literacy as the knowledge of pension legislation and provide an indicator of pension literacy. To understand the trade-offs between the benefits and the cost of acquiring pension literacy, we deliver a fully-fledged stochastic dynamic life-cycle model. The model is used: (i) to discuss the effect of pension literacy on the uncertainty surrounding future pension benefits; (ii) to show that the offset between private and social security wealth depends on pension literacy; (iii) to provide a framework to evaluate the effect of policies aimed at reducing the cost of acquiring pension literacy.
Main policy, industrial and scientific implications:
The approach can be used to derive an indicator of pension literacy and to show the quantitative relevance of pension literacy for retirement preparation.
Dissemination Events:
Scientific Outputs: