This paper reports on several self-assessed and objective measures of financial literacy newly added to the American Life Panel (ALP), and it links these performance measures to efforts consumers make to plan for retirement. We evaluate the causal relationship between financial literacy and retirement planning by exploiting information about respondents' financial knowledge acquired in school -before entering the labor market and certainly before starting to plan for retirement. Results show

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... t those with more advanced financial knowledge are those more likely to be retirement-ready. There can hardly be a better time to make the case for economic and financial literacy... a better-informed citizenry would likely have resulted in more prudent decision making and, consequently, less harm to the economy. 1 Ordinary consumers must make extraordinarily complex financial decisions on a daily basis, yet there is now growing evidence that households are rather poorly informed when they make many consequential economic choices. 2 Prior surveys reveal that financial illiteracy is widespread among older individuals: only half of Americans age 50+ can correctly answer two simple questions about compound interest and inflation; only one-third can answer these two questions and another question on risk diversification. 3 Financial literacy is also lacking among the young; less than half of young adults (ages 23-27) understand interest compounding, inflation, and risk diversification (Lusardi, Mitchell and Curto, 2008) . Most importantly, there is evidence that the least financially literate are the least likely to save for retirement (Lusardi and Mitchell, 2006 , 2007a . This paper examines the questions of who is financially literate, whether people accurately perceive their own economic decision-making skills, and where these skills come from. To this end, we have designed and implemented a new set of questions on both financial literacy and retirement planning for respondents to the American Life Panel (ALP), where we are able to measure financial literacy in a more sophisticated manner than heretofore feasible. This 1