Financial literacy and private old-age provision in Germany : evidence from SAVE 2008

Bucher-Koenen, Tabea

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URL:	https://madoc.bib.uni-mannheim.de/2572
Additional URL:	http://mea.mpisoc.mpg.de/uploads/user_mea_discussi...
URN:	urn:nbn:de:bsz:180-madoc-25725
Document Type:	Working paper
Year of publication:	2009
The title of a journal, publication series:	MEA Discussion Papers
Volume:	192
Place of publication:	Mannheim
Publication language:	English
Institution:	Außerfakultäre Einrichtungen > Mannheim Research Institute for the Economics of Aging (MEA) (- 6/2011) (Börsch-Supan) (Börsch-Supan)
MADOC publication series:	Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject:	330 Economics
Classification:	JEL: J26 D14 D12 D91 ,
Subject headings (SWD):	Deutschland , Bevölkerung , Wissen , Wirtschaft , Finanzlage , Private Altersversorgung , Privater Anleger
Abstract:	The German population has good financial knowledge measured on the basis of three financial literacy questions. Around 85 % of the individuals comprehend the functioning of interest and inflation. And 60 % of the individuals understand the relationship of risk and diversification. Overall around 52 % of the individuals give correct answers to all three considered questions of financial literacy. Bi-variate and multivariate analyses of the relation between giving three correct answers and socio-demographic characteristics reveal that higher wealth is associated with higher levels of financial literacy. Moreover, financial literacy relates to higher levels of income and education. There is a significant difference between men and women to give three correct answers. Individuals in East and West, are equally literate, when controlling for differences in income, wealth and education. A positive correlation of financial literacy and financial decision making is identified: more literate households are more likely to save privately for their old-age and at the same time households saving privately for their old-age acquire financial knowledge to improve their investment decisions. Interestingly, the possession of a state subsidised Riester contract is related to lower levels of financial literacy than the possession of other non-subsidised forms of private old-age provision. This indicates that Riester subsidies to some extent successfully encourage individuals with lower financial knowledge to save for old-age. Nevertheless, individuals in the lowest income quintile still have very low levels of private coverage despite the high subsidies. At the same time they show the lowest levels of financial literacy.
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