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Who lost the most? Financial literacy, cognitive abilities and the financial crisis

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Numéro54
DateFebruary 2011
AuteurTabea Bucher-Koenen and Michael Ziegelmeyer
RésuméWe study how and to what extent private households are affected by the recent financial crisis and how their financial decisions are in uenced 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.

Keywords: financial literacy, cognitive ability, financial crisis, life-cycle savings, saving behavior, portfolio choice

JEL Classification: D91, D14, G11

 

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