Once Burned, Twice Shy? Financial Literacy and Wealth Losses during the Financial Crisis*

Bucher‒Koenen, Tabea; Ziegelmeyer, Michael

doi:10.1093/rof/rft052

Cited by 97 publications

(35 citation statements)

References 39 publications

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“…A related strand of literature analyzes the association between financial literacy and trading behavior (e.g., Feng and Seasholes 2005;Bilias et al 2010;Hoffmann et al 2013;Bucher-Koenen and Ziegelmeyer 2014;Guiso and Viviano 2015) and the corresponding studies generally document a positive impact of financial literacy as financially sophisticated investors tend to commit less investment mistakes. 34 In a recent contribution, Bucher-Koenen and Ziegelmeyer (2014) use the financial crisis as a natural experiment to examine individual investors' ability to cope with sudden economic shocks and document that low literate households are significantly more likely to sell off assets that have lost in value, thereby making paper losses permanent.…”

Section: Investment Choicesmentioning

confidence: 99%

“…34 In a recent contribution, Bucher-Koenen and Ziegelmeyer (2014) use the financial crisis as a natural experiment to examine individual investors' ability to cope with sudden economic shocks and document that low literate households are significantly more likely to sell off assets that have lost in value, thereby making paper losses permanent. Shunning stock markets altogether is also associated with a decrease in expected returns on investments (Bucher-Koenen and Ziegelmeyer 2014).…”

Section: Investment Choicesmentioning

confidence: 99%

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Financial literacy, financial advice, and financial behavior

2017

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In this survey, we review the voluminous body of literature on the measurement and the determinants of financial literacy. Wherever possible, we supplement existing findings with recent descriptive evidence of German households' financial literacy levels based on the novel Panel on Household Finances dataset, a large-scale survey administered by the Deutsche Bundesbank and representative of the financial situation of households in Germany. Prior research not only documents generally low levels of financial literacy but also finds large heterogeneity in financial literacy across the population, suggesting that economically vulnerable groups are placed at further disadvantage by their lack of financial knowledge. In addition, we assess the literature evaluating financial education as a means to improve financial literacy and financial behavior. Our survey suggests that the evidence with respect to the effectiveness of the programs is rather disappointing. We also review the role of individuals' financial literacy for the use of professional financial advice and assess whether expert intervention can serve as a substitute to financial literacy. We conclude by discussing several directions for future research.

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Section: Investment Choicesmentioning

confidence: 99%

Section: Investment Choicesmentioning

confidence: 99%

Financial literacy, financial advice, and financial behavior

2017

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“…4 Respondents were asked about the total wealth loss generated due to the crisis in 2008. Bucher-Koenen and Ziegelmeyer (2014) employ this question to analyze who realized losses. 5 Conditional on attributing wealth changes to the crisis, the average change in financial wealth from end-2007 to end-2009 is a loss of 350 euros.…”

Section: Empirical Approachmentioning

confidence: 99%

Household risk taking after the financial crisis

Necker

Ziegelmeyer

2016

The Quarterly Review of Economics and Finance

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Available online xxx JEL classification: D81 D14 G11 a b s t r a c tThis study investigates whether and how the crisis in 2008/2009 affects households' risk attitudes, subjective risk and return expectations, and planned financial risk taking using the German SAVE study. Households' wealth change from end-2007 to end-2009 is not found to have an effect. However, households that attribute losses to the crisis decreased their risk tolerance and planned risk taking; the probability of expecting an increase in risks and returns is increased. According to economic theory, wealth changes attributed to a dramatic event should not have a different effect than other wealth changes. The results suggest an emotional reaction.

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“…Bucher- Koenen and Ziegelmeyer (2014) found that Germans with low levels of financial literacy were less likely to have invested in the stock market, and they also reacted to financial crises by selling assets that lost value. Using Dutch data, van Rooij et al (2011) assessed the links between financial literacy and stock market participation, testing the direction of causality between literacy and stock market participation by including instrumental variables for respondents' literacy levels (e.g.…”

Section: Prior Studiesmentioning

confidence: 99%

Financial Literacy and Suboptimal Financial Decisions at Older Ages

et al. 2019

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Over the life-cycle, wealth holdings tend to be highest in the early part of retirement. The quality of financial decisions among older adults is therefore an important determinant of their financial security during the asset drawdown phase. This paper assesses how financial literacy shapes financial decision-making at older ages. We devised a special module in the Singapore Life Panel survey to measure financial literacy to study its relationship with three aspects of household financial and investment behaviors: credit card debt repayment, stock market participation, and adherence to age-based investment glide paths. We found that the majority of respondents age 50+ has some grasp of concepts such as interest compounding and inflation, but fewer know about risk diversification. We provide evidence of a statistically significant positive association between financial literacy and each of the three aspects of suboptimal financial decision-making, controlling for many other factors, including education. A one-unit increase in the financial literacy score was associated with an 8.3 percentage point greater propensity to hold stocks, and a 1.7 percentage point higher likelihood of following an age-appropriate investment glide path. The financial literacy score is only weakly positively linked with timely credit card balance repayment, both in terms of statistical significance and estimate size.

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Once Burned, Twice Shy? Financial Literacy and Wealth Losses during the Financial Crisis*

Cited by 97 publications

References 39 publications

Financial literacy, financial advice, and financial behavior

Financial literacy, financial advice, and financial behavior

Household risk taking after the financial crisis

Financial Literacy and Suboptimal Financial Decisions at Older Ages

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