Does Financial Regulation Unintentionally Ignore Less Privileged Populations? The Investigation of a Regulatory Fintech Advancement, Objective and Subjective Financial Literacy

Abstract

In 2013–2015, the Israeli insurance and long-term savings regulator reached out to the population, recommending the use of a new centralized website created by the regulator to help individuals find inactive retirement savings accounts and close them )withdraw the funds or transfer them to active accounts). We find that the government’s efforts did not result in the closure of the majority of such accounts, and that the communication did not reach all subpopulations equally. Provident fund records indicate that those who closed accounts following the campaign were relatively older and tended to live in central locations that had a higher socioeconomic index. Using survey data, we find that the unemployed and those who lacked financial literacy and confidence in their knowledge of retirement planning were less likely to enter the website, and less likely to take action based on the information. Surprisingly, we find that subjective confidence in one’s financial knowledge in the specific subject matter—in this case, retirement savings—is a more important condition for financial action than objective knowledge. The survey further shows the importance of gender, age, education, and immigration status. Using a controlled field experiment we also provide evidence that a more detailed and personal human intervention can achieve better results in relaying financial information to underprivileged populations compared with wide media campaigns.

Keywords: financial literacy, financial confidence, fintech, financial regulation, pension