Retirement Financial Behaviour: How Important Is Being Financially Literate?

Using Item Response Theory to analyse survey data from a representative sample of 551 Swedish citizens, a new 16-question measure of fact-based financial literacy is developed and validated. Uni-dimensionality of the measure is verified, and expected correlations are observed with an existing measure of fact-based financial literacy, a measure of subjective financial literacy or confidence, and age, gender, and income. A significant impact of fact-based and subjective financial literacy are found on three time-ordered stages of individuals’ retirement behaviour: planning, saving, and investment management. It is concluded that policies increasing final literacy are important in different phases of the life cycle.