Children and Pensions. Alessandro Cigno and Martin Werding. MIT Press, 2007, ISBN 978-0-262-03369-5, 256 pages

knowledge – is necessary for increasing retirement saving, it is far from sufficient. In fact, most individuals can do very little when they are not provided incentives to commit and take action. Efforts in this direction have displayed some potential but must nonetheless be improved. Education programs, for example, should be revised so as not to focus exclusively on products. In addition, a previous condition for learning is interest. If individuals act myopically and do not care much about their future finances, no financial literacy program can be expected to improve savings. Symptoms of this lack of interest are also documented in the book. Even in the simplest world, in which individuals have to pick a retirement plan and let the employer do the rest, there are substantial information mismatches between what individuals have chosen and what they think have chosen. People often do not even know the type of retirement plan in which they enrolled. And when they are interested in their financial future and have an idea of the importance of their retirement plans and what is best for them, they still may not take the necessary steps to pick the retirement plan that fits their needs. Procrastination is often the norm in decisions that affect the long run. Thus, in a world of inaction, the design of default options (retirement plans in which individuals are automatically enrolled but which they can opt out of only if they take action) becomes very important. The design of such options, moreover, is a far from trivial matter in a world of heterogeneous agents, and difficult policy questions are likely to arise. Another central set of policy lessons flows from the presence of intermediaries in retirement markets. Given the need for large amounts of information and the complexity of the decisionmaking process, there is clearly an important role for intermediary agents. Problems arise, however, when the incentives of such intermediaries are not perfectly aligned with those of other agents in the market. Much as realtors served as a catalyst for the current housing market crisis, intermediaries may likewise exacerbate potential problems in retirement markets. It is difficult to envision intermediaries’ incentives as perfectly aligned with those of the market, a difficulty seen in the introduction of the new private pensions systems in Latin America. Intermediaries promoted affiliation even for individuals near retirement for whom it was clearly not optimal to switch from the old defined-benefits system. Additionally, fees can easily be overlooked, and further regulation appears to be needed. The book also explores important behavioral aspects of retirement planning decisions. Of particular importance is the timing of financial education. For example, newly hired employees are more prone to think and act about retirement planning than others. Another interesting lesson in this regard is that psychological barriers to buying annuities can be lowered with deferred payout options. As psychological barriers exist in several different aspects of this market, the details of financial products and the way in which they are presented matter substantially, and ‘‘hand-holding’’ could be important for important segments of the population. All these considerations highlight the often overlooked role of marketing and psychology. More than advocating a single silver-bullet solution, this book discusses a wide set of tools that can be used to increase personal saving around the world. We owe a debt of gratitude to Lusardi for having assembled a collection that is more than food for thought; it is a banquet.