AI Article Synopsis
- Financial knowledge significantly impacts wealth inequality by helping individuals make smarter resource allocations in uncertain environments.
- Better-educated individuals benefit the most from investment in financial knowledge due to the structure of the U.S. social insurance system.
- The study finds that financial knowledge accounts for 30-40% of the inequality seen in retirement wealth compared to simpler saving models.
Article Abstract
We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge.
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| http://www.ncbi.nlm.nih.gov/pmc/articles/PMC5445941 | PMC |
| http://dx.doi.org/10.1086/690950 | DOI Listing |
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