Early Life Schooling and Late Life Financial Literacy in The - - PowerPoint PPT Presentation

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Early Life Schooling and Late Life Financial Literacy in The - - PowerPoint PPT Presentation

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Early Life Schooling and Late Life Financial Literacy in The Wisconsin Longitudinal Study Pamela Herd and Karen Holden Prepared for presentation at the FLRC Conference, Washington, D.C. FLRC Conference, Washington, D.C. November 18 19, 2010

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Early Life Schooling and Late Life Financial Literacy in The Wisconsin Longitudinal Study

Pamela Herd and Karen Holden Prepared for presentation at the FLRC Conference, Washington, D.C. FLRC Conference, Washington, D.C. November 18‐19, 2010

1 SSA FLFC 19-F-10003-5-01, University of Wisconsin

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The research reported herein was performed pursuant p p f p to a grant from the U.S. Social Security Administration (SSA) funded as part of the Financial Literacy Research Consortium Consortium. The opinions and conclusions expressed are solely those The opinions and conclusions expressed are solely those

  • f the author(s) and do not represent the opinions or

policy of SSA or any agency of the Federal Government

  • r of the of the University of Wisconsin

System, including the Center for Financial Security.

SSA FLFC 19-F-10003-5-01, University of Wisconsin 2

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Study Contributions Study Contributions

  • Focusing on the relationship between ‘general

Focusing on the relationship between general skills’ early in life and financial literacy in late life rather than ‘specific skills’ training life rather than specific skills training.

  • Testing alternative measures of financial

literacy literacy.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Changing Context of Retirement Changing Context of Retirement

  • Individualized retirement planning

Individualized retirement planning

– Shift from Defined Benefit to Defined Contribution Parallels in health care – Parallels in health care

  • The rising importance of financial literacy skills

– Parallels in health care (health literacy) .

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Specific vs. General Skills: Interventions

  • Current research emphasis on specific kinds of

Current research emphasis on specific kinds of ‘educational’ intervention—specific skills

  • But what about general skills? How does early

lif h li ? Mi h h life schooling matter? Might these more general skills matter in the ability to adapt in h i ? changing contexts?

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Measures of Financial Literacy Measures of Financial Literacy

  • Existing measures include:

Existing measures include:

– Knowledge (ability to calculate compound interest) interest) – Behavior based measures (i.e. debt levels, participation in retirement plans) participation in retirement plans)

  • Proposed Measure: Knowledge of individual

financial resources financial resources

– Captures both knowledge and behavior Usefulness may vary based on age of respondents – Usefulness may vary based on age of respondents

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Research Question Research Question

  • How do early life schooling and general

How do early life schooling and general cognition measures correlate with knowledge

  • f individual financial resources in late life?
  • f individual financial resources in late life?

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Data: Wisconsin Longitudinal Study Data: Wisconsin Longitudinal Study

  • 1 in 3 Wisconsin high school graduates from

1 in 3 Wisconsin high school graduates from the class of 1957

  • We employ the 1957 and 2004 data
  • We employ the 1957 and 2004 data.
  • Sample loss due to death, attrition, and non‐

response.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Data: Wisconsin Longitudinal Study Data: Wisconsin Longitudinal Study

  • Outcome Measures (2004):

Outcome Measures (2004):

– Ability to answer values on all asset questions (percent of assets held for which exact amount (percent of assets held for which exact amount was given). – Ability to provide value of retirement accounts Ability to provide value of retirement accounts that accumulate a balance including IRAs, 401‐ks, etc. – Ability to state value of checking account.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Data: Wisconsin Longitudinal Study Data: Wisconsin Longitudinal Study

  • Covariate Measures (1957):

Covariate Measures (1957):

– Sex Age – Age – Parental SES Ed ti l Att i t ( d t d i t – Educational Attainment (updated in recent surveys) Coursework (English Algebra Trig/Physics) – Coursework (English, Algebra, Trig/Physics) – IQ (3 splines) Hi h S h l R k – High School Rank

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Methods Methods

  • OLS and Logit/Probit Models

OLS and Logit/Probit Models

  • Separate models for those with and without

college degrees college degrees.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Findings Findings

SSA FLFC 19-F-10003-5-01, University of Wisconsin 12 SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Assets Summary Results: Assets Summary

0 1 0.07 0.08 0.09 0.1 0.04 0.05 0.06 0.07 College 0.01 0.02 0.03 No College

NS NS NS NS NS

‐0.01

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Assets Summary Results: Assets Summary

  • IQ and high school rank matter for those

IQ and high school rank matter for those without a college degree. Up to 100, each 10 points is associated with a 3% increase asset points is associated with a 3% increase asset knowledge.

  • Coursework (Trig/Physics/Algebra) matter for
  • Coursework (Trig/Physics/Algebra) matter for

those with a college degree. But these effects are smaller than the IQ effects for those are smaller than the IQ effects for those without a college degree, but closer to the ‘rank’ effect rank effect.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Private Pensions Results: Private Pensions

0 2 0.15 0.2 0.1 College N C ll

NS

0.05 No College

NS

‐0.05 Male IQ Bottom IQ Middle Additional Schooling

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Private Pension Results: Private Pension

  • For those without a college degree IQ

For those without a college degree, IQ

  • matters. (up to 120, each 10 points is

associated with a 4% increase in the associated with a 4% increase in the probability of knowing the value).

  • For those with a college degree it’s additional
  • For those with a college degree it s additional

schooling that matters. (2% for each additional level) additional level).

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Checking Accounts Results: Checking Accounts

0.12 0 08 0.1 0.06 0.08 Men IQ Middl 0.02 0.04 IQ Middle ‐0.02 College No College

NS

0.02

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Results: Checking Account Results: Checking Account

  • For those without a college degree IQ

For those without a college degree, IQ

  • matters. 10 points increase probability by 3

percent for middle IQ group percent for middle IQ group.

  • For those with a college degree, algebra

coursework is weakly related coursework is weakly related.

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Sensitivity Analyses Sensitivity Analyses

  • Comparing do not knows to refusals

Comparing do not knows to refusals

– IQ Gender – Gender – Underestimated effects

V i th t t

  • Varying the course content measures
  • Probabilities instead of odds ratios

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Discussion Discussion

  • Importance of early life cognition and

Importance of early life cognition and educational attainment

  • GENDER!
  • GENDER!
  • Need more tests of these outcome measures

(i ili b k i ) (i.e. utilize bracketing)

SSA FLFC 19-F-10003-5-01, University of Wisconsin

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Full contact info: Pamela Herd, 1080 Observatory Drive, Madison, WI 53706, email: pherd@lafollette.wisc.edu.

http://cfs.wisc.edu/

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