A new working PRC paper titled “Financial Knowledge and 401(k) Investment Performance” reports that more financially knowledgeable investors can anticipate earning 130 basis points more per year in their 401k plans compared to their less sophisticated peers, even after adjusting for risk.
The research is authored by Robert Clark of North Carolina State University, Annamaria Lusardi of George Washington University, and Olivia S. Mitchell, Professor of Insurance/Risk Management and Applied Economics/Policy and Director of Wharton’s Pension Research Council. It finds that “the significantly higher risk-adjusted annual expected returns of 130 basis points for the best versus the least knowledgeable confirm that financial literacy can contribute” to better retirement saving..
The study concludes that, since “financial knowledge does appear to help people invest more profitably, this may provide a rationale for efforts to enhance financial knowledge in the population at large.”
Click here to read a discussion of the work at ThinkAdvisor.com