Does Product Familiarity Matter for Participation?

SAFE Working Paper No. 63

63 Pages Posted: 3 Sep 2015

See all articles by Nicola Fuchs-Schundeln

Nicola Fuchs-Schundeln

Goethe University Frankfurt

Michael Haliassos

Goethe University Frankfurt - House of Finance; Goethe University Frankfurt - Faculty of Economics and Business Administration; CEPR; NETSPAR

Multiple version iconThere are 4 versions of this paper

Date Written: May 19, 2015

Abstract

Household access to financial products is often conditioned on previous use. However, banning access when learning is possible may be discriminatory or counterproductive. The "experiment" of German reunification (exogenously) offered to East Germans unconditional access to (exogenously) unfamiliar capitalist products. Controlling for characteristics, East Germans participated immediately, were as likely to use unfamiliar risky securities as West Germans, and more likely to use consumer debt, without signs of regret. Our results suggest that mistakes of unfamiliar households can be prevented by a knowledgeable and well-incentivized financial sector and by interaction with familiar peers. This implies that regulation should refocus on the financial sector rather than on prohibiting individuals to gain familiarity with financial products.

Keywords: Household finance, familiarity, regulation, investor protection, financial literacy, stockholding, household debt, consumer credit, social interactions, counterfactual analysis, German reunification

JEL Classification: G11, E21

Suggested Citation

Fuchs-Schundeln, Nicola and Haliassos, Michael, Does Product Familiarity Matter for Participation? (May 19, 2015). SAFE Working Paper No. 63. Available at SSRN: https://ssrn.com/abstract=2473572 or http://dx.doi.org/10.2139/ssrn.2473572

Nicola Fuchs-Schundeln

Goethe University Frankfurt ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Haliassos (Contact Author)

Goethe University Frankfurt - House of Finance

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, 60323
Germany

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
PF H32
Frankfurt am Main, D-60323
Germany

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

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