The Effect of Compulsory Education on Retirement Financial Outcomes: Evidence from China

Abstract

Retirement planning has become an increasingly important component of individual financial decision making. This paper presents the first causal evidence that compulsory education improves retirement financial outcomes in a developing economy. Exploiting the 1986 compulsory schooling reform in China, we show that compulsory education increases rural residents’ participation in the New Rural Pension Scheme, the world’s largest public pension program. Using the instrumental variable strategy in a Difference-in-Differences framework, we find that an additional year of schooling significantly increases pension participation by 3.5 percentage points, and this positive result is more prominent among women. Mechanism analysis suggests that cognition, access to information, and financial literacy are essential pathways in the education-pension nexus.