Financial Literacy and Financial Sophistication in the Older Population: Evidence from the 2008 HRS

Published: 2009


This paper analyzes new data on financial literacy and financial sophistication from the 2008 Health and Retirement Study. We show that financial literacy is lacking among older individuals and for the first time explore additional questions on financial sophistication which proves even scarcer. For this sample of older respondents over the age of 55, we find that people lack even a rudimentary understanding of stock and bond prices, risk diversification, portfolio choice, and
investment fees. In view of the fact that individuals are increasingly required to take on responsibility for their own retirement security, this lack of knowledge has serious implications.

Key Findings

    • Americans over age 55 lack a basic understanding of the stock market, risk diversification, portfolio choices, and investment fees.
    • Lack of financial literacy is more evident among women, minorities, and those with less education and income.
    • Americans would benefit from financial education programs targeted to their needs.