Robert L. Clark, Professor of Management, Innovation, and Entrepreneurship and Professor of Economics at North Carolina State University, and TIAA-CREF Institute Fellow; Madeleine d’Ambrosio, Vice President and Executive Director, TIAA-CREF Institute
February 2008 |
There is considerable evidence that many Americans do not possess the essential knowledge needed to develop realistic retirement goals along with the saving and investment strategies necessary to attain their retirement goals. Given the low level of saving by many households, the need for enhanced financial education to improve the level of financial literacy is an important policy issue. Employer-sponsored education programs can play a major role in disseminating specific information in order to increase the knowledge related to retirement planning. Inadequate financial knowledge may cause workers to start saving too late in life or save too little to realize their stated retirement goals. As a result, they are unlikely to achieve an optimal balance between consumption while working and consumption in retirement. In addition, a lack of information concerning the risk-return distribution of various investments might lead them to misallocate their retirement portfolios. If this situation is true for most workers, then financial education programs should enhance lifetime wellbeing and improve the retirement saving process.