They say that pyramids are a bad thing, but I like this one. Today, it was announced that my paper with Olivia Mitchell, "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," was awarded the Fidelity Research Institute Pyramid Prize for academic work on improving lifelong financial well-being.
Here's an overview of the paper:
With the first wave of 76 million Baby Boomers on the cusp of retirement, the authors sought to understand how financially prepared this large and influential cohort is for the next phase of their lives. Using the Health and Retirement Study for their analysis1, Lusardi and Mitchell explore the links between financial literacy, planning and retirement savings adequacy. They conclude that individuals who plan for retirement (planners) arrive close to retirement with much higher wealth levels and display higher financial literacy than non-planners. Their analysis shows that planning can actually jump-start the retirement savings process and that even a small amount of planning can go a long way towards boosting wealth holdings. Their estimates suggest that those who plan accumulate nearly 20% more in net worth versus those who don't plan for retirement.
Lusardi and Mitchell further conclude that from a policy standpoint, for financial literacy initiatives to be effective in complimenting legislation like the Pension Protection Act of 2006 which was intended to enhance overall retirement savings, that a one-size-fits-all approach is unlikely to do much to build retirement wealth. They contend that instead, targeted efforts will be needed and will be most useful if focused to particular subgroups in the economy that are most at risk of not preparing adequately for their retirement.
For the great majority of working Americans, their biggest and most complex financial goal will be preparing for retirement and this comprehensive research helps to advance our understanding of the connection from financial literacy to planning activity and from planning activity to wealth accumulation. These findings highlight the need to develop and integrate creative approaches to improving financial literacy for Americans to complement the development of other innovative initiatives such as auto enrollment, auto increases, and appropriate default investment options to improve the financial security of current and future retirees.
And here's a link to the paper.