Context

The never-before-tested relationship between financial literacy and retirement planning in Finland bears two distinct factors that add significant evidence to a growing area of international research: (1) the educational level of Finns is high, (2) the levels of social security and especially the statutory predetermined component in pensions are high, which could reduce the incentives for pension planning. Under the current Finnish pension system, private firms and the employer, not the employee, choose the pension provider in a semi-funded welfare-based benefit scheme. Due to prolonged recession, and various economic stresses, this model is up for reconsideration.

The study

This study, conducted in 2014 by the University of Vaasa and the University of Tampere, involves the first nationally representative survey on the financial knowledge, behaviour and attitudes in Finland. It was primarily funded by the Academy of Finland and various financial sector trusts and institutions and involved an amalgamation of the OECD and Flat World Project questionnaires delivered in a series of face-to-face interviews by TNS Gallup. A cross-sectional sample consisting of 1,477 valid observations was collected from respondents age 18 to 97.

Key findings

• 58% of respondents provided the correct answers regarding interest rates, lower than scores reported in the U.S., but still in the upper quartile;

• The most financially educated tend to be:
• those between 36 and 50 years of age,
  • males over females,
  • those with higher levels of academic education, and
  • self-employed more than the employed, unemployed or retired;
• The most financially confident tend to be:
• males over females,
  • higher educated over high school graduates, and
  • older over younger participants;
  • In Finland, markedly low correlations exist between actual financial literacy and perceived financial ability (correlation: 0.08);

Financial literacy and retirement planning:

• Of those non-retired respondents (n=853), 29% had considered retirement, markedly less than in the U.S. (43%);
• Those planning for retirement have a higher share of correct responses regarding risk and inflation, but lower share of correct response regarding interest than non-planners;
• Differences of financial knowledge between planners and non-planners is much smaller among Finns than Americans;
• While the overwhelming majority of Finns demonstrate no statistically significant correlation between financial education and planning for retirement, two groups demonstrate a strong positive relationship:
• Women in general when compared to men, likely due to their atypical employment relationships which may require them to be more attentive; and
  • The self-employed, who compared with wage earners are more responsible for their pension decisions in Finland;
• The core three financial literacy questions do not appear to explain retirement planning after the set of control variables is taken into account, which conflicts with the results of some studies, but not all. Furthermore, Sweden and New Zealand demonstrate a similar lack of statistical significance;
• • women tend to live longer, and have longer retirement periods;
  • pensioners who are most likely to be living in poverty are women who live alone (single, widowed or divorced);
  • women have, on average, lower labour market attachment than men; and
  • women are more likely than men to select family leave (up to 3 years per child in Finland) and therefore tend to have shorter, more interrupted careers;

Points to consider

• the direction of causality cannot be conclusively established due to the simplistic nature of the survey data