Hostname: page-component-76fb5796d-r6qrq Total loading time: 0 Render date: 2024-04-25T16:53:15.868Z Has data issue: false hasContentIssue false
  • English
  • Français

Voluntary savings, financial behavior, and pension finance literacy: evidence from Chile*

Published online by Cambridge University Press:  25 February 2013

OSCAR M. LANDERRETCHE  and
CLAUDIA MARTÍNEZ
OSCAR M. LANDERRETCHE
Affiliation:
Department of Economics, University of Chile (e-mail: landerretche@fen.uchile.cl)
CLAUDIA MARTÍNEZ
Affiliation:
Department of Economics, University of Chile
Get access Rights & Permissions [Opens in a new window]

Abstract

Chileans have limited knowledge of the pension system, its rules, and the consequences involved in their personal decisions within it. Using a variation in the household composition – having a pensioner in the household – as an instrument, we show that Chileans with greater knowledge about the pension system are more likely to have additional financial savings, but not within the voluntary pension saving plans offered by the pension system. We find that getting one additional answer right in the pension literacy survey (out of six) generates approximately a 50% additional chance that the individual will save at least in one of the surveyed periods, and a 25% additional chance that the individual will save in both surveyed periods. We also test for evidence that pension literacy affects worker choices regarding their pension savings (what we call active financial behavior). We find that more literate workers are more likely to engage in pension fund type switching and that independent workers are more likely to voluntarily enter the pension system as affiliates if they have greater pension finance literacy. Getting one additional answer right in the pension literacy survey (out of six) increases the probability of pension fund type switching by 20% and the probability of voluntary affiliation to the pension system of self-employed workers by 30%.

Keywords

Pensionsfinancial literacyhousehold information
Type
Articles
Information
Journal of Pension Economics & Finance , Volume 12 , Issue 3 , July 2013 , pp. 251 - 297
Copyright
Copyright © Cambridge University Press 2013 

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Footnotes

*

The authors would like to thank Claudia Sahm, Patricia Medrano, Esteban Puentes, Jose Luis Ruiz, two anonymous referees and seminar participants at University of Michigan, University of Chile, the Chilean Public Policy Society, and the Chilean Economic Society for helpful comments. We thank Barbara Flores and particularly Federico Huneeus for excellent research assistance. This study uses information from the 2004 and 2006 Social Security Survey in Chile. The authors are indebted to the Office of the Deputy Secretary of Social Security of Chile for providing access to its database. All results of this study are the sole responsibility of the authors and the Office of the Deputy Secretary of Social Security of Chile disclaims all liabilities.

References

Acuña, R. and Iglesias-Palau, A. (2001). ‘Chile's Pension Reform after 20 Years’ Social Protection Discussion Paper Series 0129, December.Google Scholar
Arenas de Mesa, A. (2010). Historia de la Reforma Previsional Chilena: Una experiencia exitosa de política pública en democracia. Santiago, CA: Organización Internacional del Trabajo.Google Scholar
Arenas de Mesa, A., Bravo, D., Behrman, J., Mitchell, O. and Todd, P. (2006). The Chilean pension reform turns 25: lessons from the social protection survey NBER Working Paper, No. 12401, July.Google Scholar
Arenas de Mesa, A., Benavides, P., González, L. and Castillo, J.L. (2008). La Reforma Previsional Chilena: Proyecciones Fiscales 2009–2025’ Estudios de Finanzas Públicas de la Dirección de Presupuestos de Chile, Septiembre.Google Scholar
Arrau, P. (1991). La Reforma Previsional Chilena y su Financiamiento Durante la Transición. Colección Estudios CIEPLAN No. 32, Junio.Google Scholar
Barr, A. and Packard, T. (2002). Revealed Preference and Self Insurance: Can We Learn from the Self Employed in Chile? World Bank Policy Research Working Paper No. 2754, January.Google Scholar
Behrman, J., Mitchell, O., Soo, C. and Bravo, D. (2012). How financial literacy affects household wealth accumulation. American Economic Review, 102(3): 300–304.Google Scholar
Berstein, S. and Ruiz, J. L. (2005). Sensibilidad de la demanda con consumidores desinformados: el caso de las AFP en chile. Documento de Trabajo de la Superintendencia de Administradoras de Fondos de Pensiones de Chile No. 4, Abril.Google Scholar
Berstein, S., Larraín, G. and Pino, F. (2005). Cobertura, densidad y pensiones en Chile: Proyecciones a 20 años plazo. Documento de Trabajo de Superintendencia de Administradoras de Fondos de Pensiones de Chile No. 12, Noviembre.Google Scholar
Brown, J., Ivkovich, Z., Smith, P. and Weisbenner, S. (2008). Neighbors matter: causal community effects and stock market participation. Journal of Finance, 63(3): 1509–1531.Google Scholar
Bucher-Koenen, T. and Lussardi, A. (2011). Financial literacy and retirement planning in Germany. Journal of Pension Economics and Finance, 10(4): 565–584.Google Scholar
Cerda, R. (2008). The Chilean pension reform: a model to follow? Journal of Policy Modeling, 30(3): 541–558.Google Scholar
Chan, S. and Stevens, A. H. (2008). What you don't know can't help you: pension knowledge and retirement decision making. Review of Economics and Statistics, 90(2): 253–266.CrossRefGoogle Scholar
Cifuentes, R. (1996). Reforma de los sistemas previsionales: aspectos macroeconómicos. Cuadernos de Economía, 32(96): 217–50.Google Scholar
Corbo, V. and Schmidt-Hebbel, K. (2003). Macroeconomic Effects of Pension Reform in Chile. In FIAP: Pension Reforms: Results and Challenges. Santiago, CA: CIEDESS.Google Scholar
Diamond, P. and Valdés-Prieto, S. (1994). Social security reform. In Bosworth, B., Dornbusch, R. and Labán, R. (eds), Chilean Economy: Policy Lessons and Challenges. Washington, DC: Brookings Institution.Google Scholar
Duflo, E. and Saez, E. (2003). The role of information and social interactions in retirement plan decisions: evidence from a randomized experiment. The Quarterly Journal of Economics, 118(3): 815–842.Google Scholar
Fajnzylber, E. and Reyes, G. Plaza (2009). Better-informed workers and retirement savings decisions: impact evaluation of a personalized pension projection in Chile. Documento de Trabajo de la Superintendencia de Administradoras de Fondos de Pensiones de Chile No. 31, Superintendencia de pensiones, Septiembre.Google Scholar
Gustman, A. and Steinmeier, T. (1999). What people don't know about their pensions and social security. NBER Working Papers, No. 7368, September.Google Scholar
Holzmann, R. (1997). Pension reform, financial market development, and economic growth: preliminary evidence from Chile. International Monetary Fund Staff Papers, 44(2): 149–178.Google Scholar
Hong, H., Kubik, J. and Stein, J. (2004). Social interaction and stock-market participation. Journal of Finance, 59(1): 137–163.Google Scholar
Iglesias-Palau, A. (2000). Pension reform and corporate governance: impact in Chile. Revista ABANTE, 3: 109–141.Google Scholar
Kritzer, B. (2008). Chile's next generation pension reform. Social Security Bulletin, 68: 69–84.Google ScholarPubMed
Lusardi, A. and Mitchell, O. (2007a). Baby boomer retirement security: the roles of planning, financial literacy and housing wealth. Journal of Monetary Economics, 54: 205–224.Google Scholar
Lusardi, A. and Mitchell, O. (2007b). Financial Literacy and Retirement Preparedness: Evidence and Implication for Financial Education. Business Economics, 42(1): 35–44.Google Scholar
Lusardi, A. and Mitchell, O. (2008). Planning and financial literacy: how do women fare? American Economic Review: Papers and Proceedings, 98(2): 413–417.CrossRefGoogle Scholar
Lusardi, A. and Tufano, P. (2009a). Debt literacy, financial experiences, and overindebtness. NBER Working Papers, No. 14808, March.Google Scholar
Lusardi, A. and Tufano, P. (2009b). How ordinary consumers make complex economic decisions: financial literacy and retirement readiness. Mimeo Dartmouth University, March.Google Scholar
Lusardi, A., Mitchell, O. and Curto, V. (2009). Financial literacy and financial sophistication among older Americans. Mimeo Dartmouth University, October.Google Scholar
Lusardi, A., Mitchell, O. and Curto, V. (2010). Financial literacy among the young: evidence and implications for consumer policy. Journal of Consumer Affairs, 44(2): 358–380.CrossRefGoogle Scholar
Marcel, M. (2006). El Derecho a una Vida Digna en la Vejez: Hacia un Contrato Social con la Previsión en Chile. Manuscrito, Mesa Redonda FIAPP, Buenos Aires, AR.Google Scholar
Martinez, C. and Sahm, C. (2009). Limited understanding of individual retirement accounts among Chileans. Working Papers of the Department of Economics of the University of Chile, No. SDT 296, June.Google Scholar
Mastrobuoni, Giovanni (2006). Do better–informed workers make better retirement choices? A test based on the social security statement. Working Paper No. 51, Carlo Alberto Notebooks.Google Scholar
Melguizo, A., Muñoz, A., Tuesta, D. and Vial, J. (2009). Pension reform and fiscal policy: some lessons from Chile. BBVA Bank Economic Research Department Working Papers No. 0915, July.CrossRefGoogle Scholar
Miranda, J. (2010). Do personalized pension projections affect retirement decisions? Evidence for Chile. Mimeo, Superintendencia de Administradoras de Fondos de Pensiones de Chile.Google Scholar
Mitchell, O. and Ruiz, J.L. (2009). Pension payouts in Chile: past, present, and future prospects. University of Pennsylvania Population Aging Research Center Working Paper, No. 26, August.Google Scholar
Thaler, R. (1994). Psychology and savings policies. American Economic Review, 84(2): 186–192.Google Scholar
Todd, P. and Vélez-Grajales, V. (2008). How pension rules affect work and contribution patterns: a behavioral model of the Chilean privatized pension system. University of Michigan Retirement Research Center Working Paper No. 193, September.Google Scholar
Valdes-Prieto, S. (2009). The 2008 Chilean reform to first-pillar pensions. CESifo Working Paper Series No. 2520, January.CrossRefGoogle Scholar
van Rooij, M., Lusardi, A. and Alessie, R. (2011a). Financial literacy, retirement planning and household wealth. NBER Working Paper No. 17339, August.Google Scholar
van Rooij, M., Lusardi, A. and Alessie, R. (2011b). Financial literacy and stock market participation. Journal of Financial Economics, 101(2): 449–472.Google Scholar