Financial Literacy and Retirement Age of UK Population

Abstract

Recently, many papers show evidence of a positive association between financial literacy and wealth holdings. It is often claimed that individuals with a higher level of financial literacy display a higher propensity to plan for retirement. In their planning process, individuals seek to achieve an optimal wealth level before their retirement by modulating their average saving rate and, as a last step, by choosing their retirement age. In this paper, we test whether UK individuals with a higher level of financial literacy, and therefore with a higher propensity to plan for retirement, are more likely to delay their retirement age than individuals whose financial literacy is lower. Based on regression analyses using the English Longitudinal Study of Ageing (ELSA) database, our results support our hypothesis of a positive relationship between financial literacy and retirement age as well as previous results that link financial literacy with individuals’ planning behaviour.