Optimal Financial Knowledge and Wealth Inequality
Open accessAbstract
We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge.
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According to a simulation by Lusardi, Michaud, and Mitchell (2017), in a life-cycle model of saving with many sources of uncertainty, from 30 to 40% of US retirement wealth inequality can be accounted for by differences in financial knowledge.
“according to the simulation by Lusardi, Michaud, and Mitchell (2017), in the context of a life-cycle model of saving with many sources of uncertainty, from 30 to 40% of US retirement wealth inequality can be accounted for by differences in financial knowledge.”
From Financial literacy and the need for financial education: evidence and implications (2019) · cites this paper as Lusardi, Michaud, and Mitchell (2017)
Programs devoted to teaching risk via visual tools have shown great promise.
“Programs devoted to teaching risk via, for example, visual tools have shown great promise (Lusardi et al., 2017).”
From Financial literacy and the need for financial education: evidence and implications (2019) · cites this paper as Lusardi et al., 2017
The Discussion and Conclusions section considers financial education programs in general but does not describe programs that teach risk through visual tools or report that they have shown promise. Searches for visual tools, teaching risk, and program effectiveness found no passage addressing that specific claim. (LLM, conf=0.76)
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- Authors
- Lusardi, A., Michaud, P.-C., & Mitchell, O. S.
- Affiliations
- National Bureau of Economic Research (US)
- HEC Montréal (CA)
- Venue
- Journal of Political Economy
- Publisher
- University of Chicago Press
- Published
- 2017-04
- Volume
- 125
- Issue
- 2
- Pages
- 431-477
- ISSN
- 0022-3808 (ISSN-L)
- 1537-534X
- PMC
- PMC5445941
- OpenAlex
- W3124526872
- Cited by
- 690
- References
- 82
- Citations by year
- 2026: 70 · 2025: 107 · 2024: 90 · 2023: 80 · 2022: 91 · 2021: 76 · 2020: 53 · 2019: 47 · 2018: 38 · 2017: 26 · 2016: 7 · 2015: 3 · 2013: 1 · 2012: 1
- FWCI
- 145.34
- Type
- journal article
- Language
- en
- Open access
- green
- www.ncbi.nlm.nih.gov
- Locations
- Journal of Political Economy (publishedVersion)
- PubMed (publishedVersion)
- PubMed Central (acceptedVersion)
- Funders
- National Institute on Aging (U01AG009740)
- Eunice Kennedy Shriver National Institute of Child Health and Human Development (R01HD069609)
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Sociology and Political Science › Income, Poverty, and Inequality
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Keywords
- financial knowledge, wealth inequality, pension wealth, social insurance, portfolio optimization, portfolio composition
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