The role of pension knowledge in voluntary pension and banking savings in Chile

PurposeIn an era of increasing financial vulnerability, people are not saving enough to either fund their future pension benefits or having precautionary savings. The authors propose that pension knowledge makes people increase their probability of having voluntary pension and banking savings.Design/methodology/approachThe authors use the social protection survey in Chile, a unique set of panel data for affiliates in 2006 and 2009. First, the authors use clustering algorithms to find naturally occurring groupings in the level of pension knowledge. Second, the authors run a probit regression model for explaining the probability of having a voluntary pension and banking savings, using as determinants the level of pension knowledge and several control variables that are usually explored in the literature.FindingsThe authors find two clusters of pension knowledge in the Chilean pension system. In addition, the authors find that there is a positive correlation between high pension knowledge and good financial decision-making, as these people have voluntary retirement and banking savings.Practical implicationsAs people who spend time planning accumulate more wealth, it is important to develop public policies that promote the advantages to know better about the benefits of having voluntary savings for the long-term horizon. Conscientious people are also more likely to have voluntary savings.Social implicationsPolicy programs to increase to be responsible can have positive effects on society's welfare.Originality/valueUp to the authors’ knowledge, this is the first study that connects clustering algorithms and pension knowledge.