Financial Literacy and Retirement Planning in Germany

We examine financial literacy in Germany using data from the SAVE survey. We find that knowledge of basic financial concepts is lacking among women, the less educated, and those living in East Germany. In particular, those with low education and low income in East Germany have little financial literacy compared to their West German counterparts. Interestingly, there is no gender disparity in financial knowledge in the East. In order to investigate the nexus of causality between financial literacy and retirement planning, we develop an IV strategy by making use of regional variation in the financial knowledge of peers. We find a positive impact of financial knowledge on retirement planning.