Voluntary Savings, Financial Knowledge and Financial Gymnastics

Oscar Landerretche
Claudia Martínez
Documentos de Trabajo del Departamento de Economía de la Universidad de Chile
2011
January
Number: 
328

Abstract

Chileans with more 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 sys- tem. This positive association between pension finance literacy and financial savings survives controls and an identification strategy that relies on instrumenting pension knowledge with the presence of a parent pensioner in the household, which we show is strongly correlated with pension literacy, has the desired exogeneity properties and is very likely to indicate exogenous access to more information on the 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 period, and a 25 % percent additional chance that the individual will save in both periods surveyed. We also test for evidence that pension literacy affects worker choices regarding their pension savings (what we call financial gymnastics). 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 the have pension knowledge. Getting one additional answer right in the pension literacy survey (out of six) increases in 20% the probability of pension fund type switching and in 30% the probability of voluntary affiliation to the pension system of self- employed workers.