Why does subjective financial literacy hinder retirement saving? The mediating roles of risk tolerance and risk perception

Abstract

The purpose of this study is to examine a mechanism through which subjective financial literacy can exert negative effects on the retirement saving intention and behaviors, which has not been well understood in prior research. Particularly, the authors draw on the relevant risk literature to introduce financial risk tolerance and risk perception as important mediators that transfer subjective financial literacy into reduced retirement saving intention which in turn affects the saving behaviors. The authors test the model with a sample of 347 adults using factor analysis and structural equation modeling. Consistent with the notions about the negative side of subjective financial literacy, the authors find supporting evidence for the proposed indirect effects of financial literacy on retirement saving intention via risk tolerance and risk perception. In addition, the authors observe that an individual's retirement saving intention strongly predicts their retirement saving behaviors. The study offers insights into the mechanisms that subjective financial knowledge might also inhibit individual's responsible financial behaviors (e.g. retirement saving).