%0 Journal Article %J The Journal of Political Economy %D 2017 %T Optimal financial knowledge and wealth inequality %A Annamaria Lusardi %A Pierre-Carl Michaud %A Olivia S. Mitchell %K Financial literacy %K Retirement Planning and Satisfaction %K Wealth %X We show that financial knowledge is a key determinant of wealth inequality in a stochastic lifecycle model with endogenous financial knowledge accumulation, where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance. Moreover, because of how the U.S. social insurance system works, better-educated individuals have most to gain from investing in financial knowledge. Our parsimonious specification generates substantial wealth inequality relative to a one-asset saving model and one where returns on wealth depend on portfolio composition alone. We estimate that 30-40 percent of retirement wealth inequality is accounted for by financial knowledge. %B The Journal of Political Economy %V 125 %P 431-477 %G eng %N 2 %1 http://www.ncbi.nlm.nih.gov/pubmed/28555088?dopt=Abstract %R 10.1086/690950