Understanding Pensions: Cognitive Function, Numerical Ability and Retirement Saving*

“We group individuals into four broad numeracy groups depending on their answers to these questions, following Banks and Oldfield (2007) and Banks, O’Dea and Oldfield (2010).”

“…may, however, have profound adverse effects on various aspects of life including leisure time activities , financial planning for retirement (Banks and Oldfield 2007) and functional status, such as medical treatment adherence and the planning of sequential activities (Fillenbaum et al.…”

“Financial literacy encompasses numerical computation ability (Banks & Oldfield, 2007; Lusardi & Mitchell, 2014), cognitive ability (Gerardi et al., 2010; Stango & Zinman, 2009), and financial knowledge (Lusardi et al., 2017), reflecting households’ comprehensive capability in financial planning,…”

“There seem to be many ways to help anyone comprehend the economic challenges and then feel sure about the calculations that contrast different return rates of various assets generally done across multiple time horizons (Banks & Oldfield, 2007).”

“Another emerging perspective is the relationship between an individual‟s cognitive ability (cognition) and financial literacy (Banks & Oldfield, 2007; Benjamin, Brown, & Shapiro, 2006).”

“The survey includes three measures of numerical ability for robustness: self-perception of math ability, self-reported highest level of completed math course, and a rank based on the number of correct responses to a 5-question quiz modeled after Banks and Oldfield (2007).”

“There is also evidence of a positive relationship between cognitive ability—itselfpositivelyrelatedtolifetimeearningscapacity—and both savings and wealth (Banks and Oldfield 2007; Banks et al. 2010; Benjamin et al. 2013).”

“Next, participants answered questions to capture fi nancial literacy (Lusardi and Mitchell 2008), numeracy (Banks and Old fi eld 2007), their own direct and indirect (i.e., through family/friends) experience with MLM (Bosley, Greenman, and Snyder 2020; Miller et al. 2023), and disclaimer recall…”

“Evidence from Banks & Oldfield (2007) and Cole et al. (2011) suggests that these skills have a significant positive impact.”

“In isolation, these results support previous literature demonstrating that FSC (Ersner-Hershfield, Garton, & Ballard, 2009) and numeracy (Banks & Oldfield, 2007; Lusardi & Mitchell, 2011) positively predict retirement savings.”

“Next, subjects answered questions to capture financial literacy (Lusardi & Mitchell, 2008) and numeracy (Banks & Oldfield, 2007).”

“Banks and Oldfield (2007) [5] Fornero and Monticone (2011) [19] Klapper and Panos (2011) [37] Song (2020) [63]  Numeracy is not the strong determinant of pension knowledge Gustman et al. (2012) [29] Wealth accumulation”

“Their findings consistently demonstrate that financial literacy enhances analytical skills, positively impacting financial decisions and investment performance (Awais et al., 2016; Banks & Oldfield, 2007; Jappelli & Padula, 2013; Lusardi et al., 2010).”

“Banks and Oldfield (2007) find that a large portion of older adults are unable to perform simple interest calculations with accuracy.”

“Banks and Oldfield (2007) argued that inadequate FL leads to inefficient resource allocation, poorer return management, and risk reduction.”

“…literacy levels are also associated with low cognitive abilities in general (Gamble et al., 2015; Herd et al., 2012; James et al., 2012; Lusardi et al., 2010; O’Connor, 2019) and numeracy in particular (Almenberg and Widmark, 2012; Banks and Oldfield, 2007; Cole et al., 2011; Roa et al., 2019).”

“Leisure activities by elderly are as important as medical security and income security for following reasons(Banks & Oldfield, 2007).”

“This shortfall in understanding is believed to translate into higher consumption, less saving, and out-of-control credit usage (Banks and Oldfield, 2007; Lusardi and Tufano, 2008; and Mitchell and Lusardi, 2015).”

“In contrast, insufficient economic or financial knowledge leads to low savings, mortgage defaults and financial mistakes, extra fees, or excessive interest rates on credit card debt (Agarwal et al., 2009; Agarwal & Mazumder, 2011; Banks & Oldfield, 2007; Gerardi, Goette, & Meier, 2010).”

“Since both tend to be positively correlated with cognitive ability (Banks and Old eld 2007), this provides an additional causal channel through which education could enter as a signi cant explanatory variable.”

“2013) and poor budgeting for the future (Banks and Oldfield 2007).”

“In addition, numerical ability is important for financial judgments and decision making, which in turn have been linked to wealth outcomes (Banks & Oldfield, 2007; Peters et al., 2006 ).”

“Evidence from Banks and Oldfield (2007) shows that women with a higher probability of widowhood tend to accumulate more pension benefits by retirement age than those with a lower probability.”

“Individuals with higher cognitive proficiency tend to engage in stock markets more frequently due to enhanced risk assessment and decision accuracy (Banks & Oldfield, 2007; Skagerlund et al., 2023).”

“The cognitive assessment included HMSE, 8 TICS, 10 Community Screening Instrument for Dementia, 23 numeracy problems, 24 and judgment and problem-solving questions.”

“Some researchers have found that cognitive ability is related to household credit card and home equity loan decisions (Agarwal & Mazumder, 2013), risk preference (Dohmen et al., 2010; Frederick, 2005), along with retirement saving behavior (Banks & Oldfield, 2007).”

“Proactive investment behaviors correlate with improved financial wellbeing indicators such as increased savings rates, higher net worth, and greater financial resilience during economic downturns (Banks & Oldfield, 2007).”

“Similar results are found for pension enrolment (8).”

“…rates (Banks et al., 2010), better financial outcomes and higher financial well-being (Tompkins, 2018), stock and housing market participation (Almenberg & Widmark, 2011), retirement savings, investment portfolios, understanding pensions, and perceived financial security (Banks & Oldfield, 2007).”

“…intentions or beliefs, but their insufficient determination limits the adequate changes in behavior; and bounded rationality, meaning that certain types of problems and decisions may be too complicated for individuals to understand and solve on their own (Banks and Oldfield, 2007; Garcia, 2009).”

“Second, our experimental findings and theoretical model, which are grounded in Dual Process Theory (Kahneman, 2003a,b, 2011; Stanovich and West, 2003) and theories of behavioral inattention (Gabaix, 2014, 2019), contribute also to the literature that relates financial mistakes and non-optimal decisions to low cognitiv…”

“149 Chapter 4: Self-Control Problems and Saving in Illiquid Assets A Self-Control Interpretation Unobservable confounding factors Some studies point to the importance of numeracy for wealth accumulation and retirement saving (see Ameriks et al. (2003) or Banks and Oldfield (2006)).”