Does Product Familiarity Matter for Participation?

61 Pages Posted: 1 Jun 2015

See all articles by Nicola Fuchs-Schündeln

Nicola Fuchs-Schündeln

Goethe University Frankfurt

Michael Haliassos

Goethe University Frankfurt - Faculty of Economics and Business Administration; Goethe University Frankfurt - House of Finance; CEPR; NETSPAR; Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS)

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Date Written: May 2015

Abstract

Household access to financial products is often conditioned on previous use. However, banning access when learning is possible may be discriminatory or counter-productive. 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: consumer credit, familiarity, financial literacy, household debt, household finance, investor protection, regulation, stockholding

JEL Classification: E21, G11

Suggested Citation

Fuchs-Schündeln, Nicola and Haliassos, Michael and Haliassos, Michael, Does Product Familiarity Matter for Participation? (May 2015). Available at SSRN: https://ssrn.com/abstract=2613029

Nicola Fuchs-Schündeln (Contact Author)

Goethe University Frankfurt ( email )

Grueneburgplatz 1
Frankfurt am Main, 60323
Germany

Michael Haliassos

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

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

Goethe University Frankfurt - House of Finance

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

CEPR

London
United Kingdom

NETSPAR ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Goethe University Frankfurt - Institute for Monetary and Financial Stability (IMFS) ( email )

Theodor-W.-Adorno-Platz 1
Frankfurt, 60323
Germany

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