Who Lost the Most? Financial Literacy, Cognitive Abilities, and the Financial Crisis
Munich Center for the Economics of Aging; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy
Banque centrale du Luxembourg; Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Social Law and Social Policy
February 14, 2011
ECB Working Paper No. 1299
We 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.
Number of Pages in PDF File: 42
Keywords: financial literacy, cognitive ability, financial crisis, life-cycle savings, saving behavior, portfolio choice
JEL Classification: D91, D14, G11working papers series
Date posted: March 6, 2011
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