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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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“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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BackgroundResultInfluentialBANKS, J., CRAWFORD, R., & TETLOW, G. (2015) · Journal of Pension Economics and Finance · doi:10.1017/s1474747215000256 · Cited by 36
“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).”
Self-citationCircadian Rhythms, Sleep and Cognitive Skills: Evidence from an Unsleeping Giant
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InfluentialFinancial planning for retirement: the role of income
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Public Policy towards Food Consumption*
Griffith, R., & O’Connell, M. (2010) · Fiscal Studies · doi:10.1111/j.1475-5890.2010.00122.x · Cited by 23
“Banks and Oldfield (2007), for instance, provide evidence that cognitive ability is strongly correlated with retirement savings outcomes.6 There is a large literature on the impact of information on consumer demand.7 Most of this literature focuses on advertising by firms, which is very different…”
BackgroundLow numeracy is associated with poor financial well-being around the world
de Bruin, W. B., & Slovic, P. (2021) · PLoS ONE · doi:10.1371/journal.pone.0260378 · Cited by 31
Białowolski, P., Cwynar, A., & Cwynar, W. (2019) · Journal of Financial Counseling and Planning · doi:10.1891/jfcp-19-00056 · Cited by 44
“…that individuals more knowledgeable in debt domain appear to be more skilled in terms of running debt-related calculations. measure of debt skills applied Banks and Oldfield (2007) and Cole et al. (2011) who evidenced significant and positive relationship between financial knowledge and numeracy.”
BackgroundFarías, P. (2018) · Journal of business research · doi:10.1016/j.jbusres.2018.01.047 · Cited by 31
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
Savings goals and wealth allocation in household financial portfolios
Changwony, F. K., Campbell, K., & Tabner, I. T. (2020) · Journal of Banking & Finance · doi:10.1016/j.jbankfin.2020.106028 · Cited by 40
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 9
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
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
“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
Metadata
- 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 › Economics, Econometrics and Finance › Finance › 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
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