Understanding Pensions: Cognitive Function, Numerical Ability and Retirement Saving*
Open accessAbstract
In a world of declining state pension provision, it is becoming increasingly important that individuals are able to understand the financial choices they face and can choose savings products, portfolios and contribution rates accordingly. In this paper, we look at numerical ability and other dimensions of cognitive function in a sample of older adults in England and examine the extent to which these abilities are correlated with various measures of wealth and retirement saving outcomes. As well as finding that relatively large fractions of the older population can be seen to have low levels of numeracy, we show that numeracy levels are strongly correlated with measures of retirement saving and investment portfolios, even when controlling for other dimensions of cognitive ability as well as educational attainment. Numeracy is also related to knowledge and understanding of pension arrangements, and with perceived financial security. In the short run, there may be a role for targeting simple retirement planning information at low‐numeracy, low‐education groups; a longer‐run goal for retirement saving policy might be to improve numeracy levels more generally.
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There is a positive relationship between cognitive abilities and numeracy on the one hand and sound financial behavior on the other hand.
“They also review a number of studies which find a positive relationship between cognitive abilities and numeracy on the one hand and sound financial behavior on the other hand”
From Financial literacy, financial advice, and financial behavior (2017) · cites this paper as Banks and Oldfield 2007
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“The groups we use are similar to those used by Banks and Oldfield (2007). The highest ability group contains those who were able to answer correctly all questions 2–5 (regardless of whether they answered question 6 correctly).”
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Demirguc-Kunt, A., Klapper, L., & Panos, G. A. (2016) · doi:10.1596/1813-9450-7693 · Cited by 31
Financial literacy and subjective expectations questions: A validation exercise
Paiella, M. (2015) · Research in Economics · doi:10.1016/j.rie.2015.11.004 · Cited by 33 · see citing works
Savings goals and wealth allocation in household financial portfolios
Changwony, F. K., Campbell, K., & Tabner, I. T. (2021) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2020.106028 · Cited by 29 · see citing works
English Longitudinal Study of Aging (ELSA)
Rogers, N. T., Banks, J. W., Nazroo, J. Y., & Steptoe, A. (2016) · Springer eBooks · doi:10.1007/978-981-287-080-3_52-1 · Cited by 8 · see citing works
Self-citationRisk Presentation and Portfolio Choice
Bateman, H., Eckert, C., Geweke, J. F., Louviere, J., Satchell, S., & Thorp, S. (2016) · European Finance Review · doi:10.1093/rof/rfv001 · Cited by 29 · see citing works
Risky choice in younger versus older adults: Affective context matters
Huang, Y., Wood, S. A., Berger, D. E., & Hanoch, Y. (2013) · Judgment and Decision Making · doi:10.1017/s1930297500005106 · Cited by 31 · see citing works
“There is evidence that older adults as a group exhibit lower levels of numeracy and that lower numerate adults are less adept decision-makers (Banks & Oldfield, 2007; Tanius, Wood, Hanoch, & Rice, 2009; Peters et al., 2007).”
Background
- Authors
- Banks, J., & Oldfield, Z.
- Affiliations
- Institute for Fiscal Studies (GB)
- ORCID
- Banks, James
- Venue
- Fiscal Studies
- Publisher
- Wiley
- Published
- 2007-06
- Volume
- 28
- Issue
- 2
- Pages
- 143-170
- ISSN
- 0143-5671 (ISSN-L)
- 1475-5890
- OpenAlex
- W2115675543
- Cited by
- 345
- References
- 0
- Citations by year
- 2026: 3 · 2025: 14 · 2024: 19 · 2023: 13 · 2022: 17 · 2021: 18 · 2020: 20 · 2019: 20 · 2018: 19 · 2017: 23 · 2016: 13 · 2015: 27 · 2014: 19 · 2013: 30 · 2012: 21
- FWCI
- 41.43
- Type
- journal article
- Language
- en
- Open access
- bronze
- doi.org
- Locations
- Fiscal Studies (publishedVersion)
- Research Explorer (The University of Manchester) (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- Government of the United Kingdom
- University College London
- Economic and Social Research Council
- Topics
- Social Sciences › Business, Management and Accounting › Accounting › Financial Literacy, Pension, Retirement Analysis
- Social Sciences › Decision Sciences › General Decision Sciences › Decision-Making and Behavioral Economics
- Social Sciences › Demography › Retirement, Disability, and Employment
- Keywords
- retirement savings, numeracy, cognitive function, older adults, pension knowledge, financial security, investment portfolio, educational attainment, retirement planning, pension policy, financial literacy
About these checks
Registry, retraction, Cites and statistics results are computed, not judged, with one exception: a printed reference that no index lists is read once by a model before it counts as a citation error. Claims are extracted by a model and kept only when their quote appears verbatim in the text; each cited source is then checked, with a model’s help, for whether it says what the claim relies on. Those verdicts can be wrong — read the claim’s quote and the cited source before relying on one.
Statistics and arithmetic are recomputed, not judged.
Confidence bands are shown only for fields calibrated on our annotated test set. None is calibrated yet, so no band is shown.
What counts as a claim ›How we measure confidence ›How we check this ›
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