b'AGING IN THE 21ST CENTURYassets, businesses and real estate fall dramaticallyThey select a sample of HRS participants agedFinancial Literacy and Planningwith age, while liquid assets rise with age. Beyond51 to 61 and married (or living with a partner)A common-sense assumption is that people who these changes associated with normal aging,from 1992 through at least 2002. In this youngerhave more information about how to plan for negative changes in health often lead to sellingsample, during the period of follow-up, they findretirement and actually do plan for retirement are the home, vehicles, businesses and real estate. Theno evidence that couples at risk of at least onelikely to end up with more retirement savings. Yet share of liquid assets increases with poor health.member experiencing work-limiting health prob- it is unclear exactly what skills and information Widowhood has a similar effect on changes overlems have lower wealth in the follow-up period. Itare required for good retirement planning. The time in the household wealth portfolio. may be that the impact of health on wealth is notHRS provides information on financial deci-apparent for less acute health events. sion-making, sources of financial information, Negative changes in health oftenand general financial literacy. Three questions lead to selling the home, vehicles,are used to assess financial literacy: one each on compound interest, effects of inflation, and businesses and real estate. risk diversification (see facing page). Lusardi and Mitchell (2011) find that half of respondents are Hurd and Rohwedder (2010a) use longitudi- able to give the correct response to the interest nal data from CAMS data to explore the impactand inflation questions, and only one-third of OOPM on retirement preparation. Somecorrectly answer the risk diversification ques-households report very large OOPM spending,tion. About 30% of respondents report having which could serve as a powerful motivation todeveloped a plan for retirement saving; of these, conserve wealth especially for those with higherabout two-thirds report being able to stick with socioeconomic status because they are muchthe plan. People who report having a plan are more likely to live to older ages. Overall, OOPMalso more likely to report using formal sources of spending substantially reduces the economicinformation like financial experts or retirement preparation of some households, especially givencalculators.that individuals can experience multiple healthEarly Baby Boomers are somewhat less likely problems and events over time. Single femalethat the original HRS cohort to report that they households are most affected since they tend tohad thought about retirement, an indicator of have lower amounts of wealth to pay for theseretirement planning (Lusardi and Mitchell 2007). expenses. Taking OOPM expenses into accountTheir wealth is somewhat higher than the earlier increases the estimate of the number of peoplecohort, but this is largely due to larger home eq-living in poverty. Butrica et al. (2010) compareuity values in 2004, prior to the Great Recession. the official poverty measure with alternativesEven accounting for demographic and other that account for OOPM costs and find a largerfactors that may be associated with retirement share of older people living in poverty if OOPMplanning, those with greater financial literacy expenses are included.are more likely to say they had thought about Yilmazer and Scharff (2013) examine indi- retirement and hold higher levels of wealth. viduals who are at higher risk of OOPM expenses.Retirement planning may have other benefits 58'