Financial literacy and retirement preparation in China

A growing body of literature, which primarily focuses on the developed world, investigates the implications of financial literacy (or lack thereof) on households' well-being. This paper examines the level of financial literacy and its impact on retirement preparation in China, a country that is growing old before getting rich. Drawing on internationally comparable survey questions, we find that a large proportion of Chinese people, especially the elderly, women, and under-educated, lack financial knowledge. The empirical results show that financial literacy has a strong and positive impact on various aspects of retirement preparation among Chinese people, including determining retirement financial needs, making long-term financial plans, and purchasing private pension insurance. Our findings suggest that concrete measures are needed to improve financial literacy so as to increase the awareness of retirement preparation in China. •A large proportion of Chinese people lack even basic financial knowledge.•The elderly, women, and under-educated especially tend to be financially illiterate.•Financial literacy, particularly advanced financial knowledge, increases households' propensity to prepare for retirement.•Financially sophisticated Chinese are more likely to have long-term financial plans.•Financial literacy increases the probability of purchasing private pension insurance.