This special issue on financial knowledge and retirement security builds on prior studies in this journal on the economic causes and consequences of financial literacy for retirement security.

We propose a model in which financial sophistication improves portfolio returns and therefore the incentive to substitute consumption intertemporally. The model delivers an Euler equation in which consumption growth is positively correlated with financial sophistication. We test the model's prediction using panel data on consumption and financial sophistication drawn from the Italian Survey of Household Income and Wealth. We find that consumption growth is positively correlated with financial sophistication, as predicted by the model. We also provide estimates of the intertemporal elasticity of substitution in the range between 0.4 and 0.6.

We examine financial literacy in Germany using data from the SAVE survey. We find that knowledge of basic financial concepts is lacking among women, the less educated, and those living in East Germany. In particular, those with low education and low income in East Germany have low financial literacy compared to their West German counterparts. Interestingly, there is no gender disparity in financial knowledge in the East. In order to investigate the nexus of causality between financial literacy and retirement planning, we develop an instrumental variables strategy by making use of regional variation in the financial knowledge of peers. We find a positive impact of financial knowledge on retirement planning.

We present new evidence on financial literacy and retirement preparation in the Netherlands based on two surveys conducted before and after the onset of the financial crisis. We document that while financial knowledge did not increase from 2005 to 2010, in 2010 significantly more individuals report having thought about their retirement. Using information on financial conditions and financial knowledge of relatives, we find a positive causal effect of financial literacy on retirement preparation. Employing the panel feature of our dataset, we show that the effect of financial knowledge on retirement planning is bound to be positive.