Financial education as a complement to public pensions: the case of naive individuals

Chiara Canta () and Marie-Louise Leroux
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Chiara Canta: TBS Business School

Journal of Population Economics, 2024, vol. 37, issue 4, No 4, 30 pages

Abstract: Abstract This paper studies the optimal design of a pension system together with publicly provided individualized financial education. Agents can invest in both a risky and a non-risky asset and can either under- or over-estimate the expected return of the risky asset. We show that, under perfect information on the misperception biases, it is optimal for the government to impose a uniform level of pension contributions equal to the optimal level of investment in the riskless asset and a U-shaped level of mandatory education. Under asymmetric information, we show that the level of education is always distorted upward for agents with important misperception biases (who either under- or over-estimate financial returns), but can be distorted upward or downward for agents with mild misperception biases. Whether we end up in one or the other situation depends on the size of the public and private costs of education as well as on the shape of the distribution of the misperception biases in the economy.

Keywords: Pension systems; Financial education; Misperception; Taxation; Asymmetric information (search for similar items in EconPapers)
JEL-codes: D14 H21 H53 H55 I22 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00148-024-01046-3

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