From the Editor

John Kitchen, U.S. International Deficits, Debt, and Income Payments: Key Relationships Affecting the Outlook

Matthew Higgins, Thomas Klitgaard, and Cédric Tille, Borrowing Without Debt? Understanding the U.S. International Investment Position

Ricardo Hausmann and Federico Sturzenegger, The Valuation of Hidden Assets in Foreign Transactions: Why “Dark Matter” Matters

Annamaria Lusardi and Olivia S. Mitchell, Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education

Ling T. He, Does Prepayment Risk of Mortgages Affect Excess Returns of Bank Stocks?

Walter McManus, The Link Between Gasoline Prices and Vehicle Sales

Thomas Hemphill, Cost-Benefit Analysis: Regulatory Reform or Favoring the Regulated?

Kenneth Long and Andrew Gross, Windows and Doors Around the World—The Global Market for Fenestration Products

Book Reviews

Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education

The Problems Are Serious, And Remedies Are Not Simple

By Annamaria Lusardi and Olivia S. Mitchell

Annamaria Lusardi is a professor of economics at Dartmouth College. She has published in leading economic journals, has taught at the University of Chicago, and consulted for government agencies in the United States, Australia, and the Netherlands. Institutions supporting her research include the National Institute on Aging, the National Science Foundation, the U.S. Department of Labor, TIAA-CREF, and the Social Security Administration via the University of Michigan Retirement Research Center. She received her Ph.D. from Princeton University.

Olivia S. Mitchell is the International Foundation of Employee Benefit Plans Professor of Insurance and Risk Management of the Wharton School at the University of Pennsylvania where she is also executive director of the Pension Research Council. She also directs the Boettner Center on Pensions and Retirement Research, serves on numerous boards and committees, and served on President Bush’s Commission to Strengthen Social Security. She received M.A. and Ph.D. degrees from the University of Wisconsin-Madison, and a B.A. from Harvard University.

Economists are beginning to investigate the causes and consequences of financial illiteracy to better understand why retirement planning is lacking and why so many households arrive close to retirement with little or no wealth. Our review reveals that many households are unfamiliar with even the most basic economic concepts needed to make saving and investment decisions. Such financial illiteracy is widespread: the young and older people in the United States and other countries appear woefully under-informed about basic financial concepts, with serious implications for saving, retirement planning, mortgages, and other decisions. In response, governments and several nonprofit organizations have undertaken initiatives to enhance financial literacy. The experience of other countries, including a saving campaign in Japan as well as the Swedish pension privatization program, offers insights into possible roles for financial literacy and saving programs.

The authors presented a paper based on this article at the 2006 annual meeting of the National Association for Business Economics.

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