Financial literacy and retirement planning: Evidence from Israel

Increasing life expectancy together with reforms in the retirement savings market and changes in the job market pose significant challenges for Israelis, who today find themselves confronted with the need to carefully plan for future retirement. Financial literacy is critical to retirement planning, particularly in wake of the increasingly wide array of long-term financial products, schemes and services marketed to individual investors. Our research focuses on financial literacy as it relates to financial planning for retirement ("retirement literacy"). It surveys and documents two aspects of financial literacy: financial knowledge and financial decision-making behavior. The findings indicate that the activities of searching for financial information and monitoring household expenses are positively correlated with retirement literacy, even after controlling for various demographic and behavioral variables. Surprisingly, no significant correlation was found between retirement literacy and financial knowledge or numeracy skills, when controlling for other variables. Financial literacy regarding retirement savings increases with an individual’s tendency to meticulously check bills and periodic account statements, while financial expertise does not necessarily translate into higher levels of retirement literacy.