Who Lost the Most? Financial Literacy, Cognitive Abilities, and the Financial Crisis

Abstract

for helpful comments. MEA is a research institute which is funded by two thirds through public third-party means for which we are very grateful. Furthermore, we would like to thank the state of Baden-Württemberg and the German Insurance Association for the basic funding of MEA. We are particularly grateful to the German Research Foundation (Deutsche Forschungsgemeinschaft) for financing the SAVE survey.† MEA and CDSE, University of Mannheim, 68131 Mannheim, Germany; e-mail: bucher@mea.unimannheim.de.‡ MEA, University of Mannheim, 68131 Mannheim, Germany; e-mail: ziegelmeyer@mea.unimannheim.de. AbstractWe study how and to what extent private households are affected by the recent financial crisis and how their financial decisions are influenced by this shock. Our analysis reveals that individuals with low levels of financial literacy are less likely to have invested in the stock market and thus are less likely to report losses in wealth.Yet, individuals with low financial literacy are more likely to sell their assets which lost in value (realize losses). This reaction to short-term losses has potential longterm consequences if individuals do not participate in markets' recovery and face lower returns in the long run.

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

“…Christiansen et al, 2008;Christelis et al, 2010;van Rooij et al, 2011b), less likely to diversify their assets (e.g. Guiso and Jappelli, 2008;von Gaudecker, 2011), and they are more likely to have incurred substantial financial losses during the recent financial crisis (Bucher-Koenen and Ziegelmeyer, 2013). Furthermore, financially illiterate households are more 4 See for an overview of financial literacy around the world using a unified measure of financial sophistication and the papers in the special issue of the Journal of Pensions Economics and Finance (Vol.…”

Financial literacy and retirement planning in Germany

“…It was correctly answered by 62 % of respondents; 6 % incorrectly responded that the statement is true ; and around one-third stated that they do not know the answer. 11 Still, at the end of 2008, on average, only around 23% of households in East and West Germany held equity (Bucher-Koenen and Ziegelmeyer, 2011). In the GDR no security markets existed (see Sauter, 2009), and so East Germans were not able to acquire stock market experience prior to reunification in 1990.…”

“…2 Civil servants have their own pension system and self-employed individuals can either self-insure or contribute to the public system. 4 See, e.g., Bucher-Koenen andZiegelmeyer (2011) for the effects of the financial crisis on private households in Germany. Families with children receive additional subsidies for each child.…”

The Influence of Media Use on Laymen's Monetary Policy Knowledge in Germany

“…An increasingly complex economic environment, involving, for example, financial market liberalisation, policy reforms in retirement saving, and the financial crisis, makes saving and investment decisions more difficult for consumers (Bucher-Koenen and Ziegelmeyer 2011, Jappelli 2010, Lusardi and Mitchell 2014. Thus, a great many authors have begun to analyse laymen's abilities to meet the challenges of a market economy, such as day-to-day management of financial resources or long-term contracts for retirement planning.…”