The Long Shadow of Socialism: On East-West German Differences in Financial Literacy

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in Abstract:We use the German re-unification as a natural experiment to understand drivers of financial literacy accumulation. With the transformation from a planned to a market-based economy in 1990, the incentives to invest in financial literacy were changed exogenously for East Germans and remained the same for West Germans. Our results show that even 20 years after reunification there is evidence for a significant financial literacy gap between East and West. While some groups, for instance women and those who have migrated from the East to the West, have mastered to catch up with their West German peers, others did not. Differences in financial literacy are present across all educational groups and at the top as well as the bottom of the income distribution. Based on models which account for factors that are commonly integrated in financial literacy theory, we decompose the financial literacy gap. Most of the gap remains unexplained. Thus, an extension of empirical and theoretical models that allow for the inclusion of differences in attitudes and values might be crucial to improve our understanding of financial literacy acquisition.

Financial Literacy and Socialist Education: Lessons from the German Reunification

“…However, the R-squared obtained from the OLS regression model lie in the range of 10% to 18%, quite comparable to those obtained by Bucher-Koenen and Lamla (2014). Results are presented after controlling for migration between East and West Germany (we employ a dummy variable which equals one for the FKP who moved from East to West, or vice-versa, between 1989 and the time of the survey).…”

“…We contribute to this topic by analyzing the East-West German gap in financial literacy. The difference in financial literacy scores between East and West Germany are not a new finding, as reported by Bucher-Koenen and Lamla (2014), and these have been proven to impact decisions related to retirement planning (Bucher-Koenen and Lusardi (2011)). The reason for such a gap, however, is not clear.…”

“…As suggested by Bucher-Koenen and Lamla (2014), the division of Germany into the FDR and the GDR and the subsequent fall of the Berlin Wall in 1989 can be considered as an event exogenous to the levels of financial knowledge prior to the division and to unobserved variables at the household levels. The educational system in the GDR rapidly changed after the fall of the Berlin Wall, and all features aiming at creating a socialist personality were eliminated from the system.…”

Childhood roots of financial literacy

“…At the same time there is evidence that financial socialization by the society that one lives in is linked to financial literacy. Bucher-Koenen and Lamla (2014) show that financial literacy is lower is East than in West Germany, even twenty years after unification. Jappelli (2010) shows that financial literacy is linked to the social security system that operates in a country; financial literacy tends to be higher in countries with less generous social security systems.…”

Non-Take-Up of Student Financial Aid: A Microsimulation for Germany

“…ey might moreover have trouble to le the application because East Germans still lag behind with respect to nancial literacy (Bucher-Koenen and Lamla, 2014). If information gaps were more important than di erent welfare preferences, we would expect a higher non-take-up probability of students with East German background.…”