The Role of Financial Literacy and Social Networks in Retirement Investment Decisions

Yun Chung | » Download Full Abstract
Assistant Professor, Department of Business (Management and Human Resources)

Young Park
Assistant Professor,  Department of Business (Finance)

Despite the increasing significance of defined contribution (DC) plans in the U.S. private pension system, the retirement income security of the plan participants has become volatile, particularly since the financial crisis in 2008. Since the participants' retirement investment decisions rely primarily on their individual ability to manage financial investments, many scholars pay attention to participants' financial literacy as a key determinant of retirement investments, but they do not consider social contexts in the discussion of financial literacy. Social networks that provide investment advice, however, may also influence investment behaviors. Therefore, this study intends to examine the combined effects of financial literacy and investment advice from social networks on retirement investment behaviors. To achieve this goal, we will interview and conduct a survey of DC plan participants in the Northern Idaho area. Using quantified social network variables based on social network analysis, we will examine the influence of financial literacy and social networks on retirement investments. Our study will extend the existing literature in social networks and investor behavior, but also open up an interdisciplinary area of behavioral finance linked with organizational behavior/human resource management.