investment in financial literacy and saving decisions abstract we present an intertemporal consumption model of investment in financial literacy consumers benefit from such investment because financial literacy allows them to increase the returns on wealth since literacy depreciates over time and has a cost in terms of current consumption the model delivers an optimal investment in literacy furthermore literacy and wealth are determined jointly and are positively correlated over the life cycle the model drives our empirical approach to the analysis of the effect of financial literacy on wealth and saving and indicates that the stock of financial literacy early in life is a valid instrument in the regression of wealth on financial literacy using microeconomic and aggregate data we find strong support for the model s predictions

the ant or the grasshopper the long term consequences of unilateral divorce laws on savings of european households abstract unilateral divorce laws udls allow people to obtain divorce without the consent of their spouse using the staggered introduction of udls across european countries we show that households exposed to udls for a longer period of time accumulate more savings this effect holds for both financial and total wealth and is stronger at higher quantiles of the wealth distribution consistent with a precautionary motive for savings we also find that exposure to udls increases female labour supply numeracy trust in others and dispositional optimism

a note on the kyoto protocol tradeable quotas and firm survival there is a concern in many countries thatintroducing a tradeable greenhouse gas quotasystem may lead to closures ofemission intensive industrial companies jebjerg and lando argue in an article publishedpreviously by this journal that shutdowns canbe prevented by a generous distribution of freequotas however this is only true if thequotas are distributed contingent on continuedproduction some of the practical problems withconditional allocation of free tradeable quotascan be avoided by letting all free quotas benon tradeable

are any growth theories robust this article investigates the strength of empirical evidence for various growth theories when there is model uncertainty with respect to the correct growth model using model averaging methods we find little evidence that so called fundamental growth theories play an important role in explaining aggregate growth in contrast we find strong evidence for macroeconomic policy effects and a role for unexplained regional heterogeneity as well as some evidence of parameter heterogeneity in the aggregate production function we conclude that the ability of cross country growth regressions to adjudicate the relative importance of alternative growth theories is limited despite the vast amount of empirical research generated by new growth theories there is remarkably little consensus on which mechanisms are most salient in explaining cross country differences this article is designed to provide some evidence on this question by examining the robustness of empirical support for different growth the ories as determinants of both aggregate growth and its underlying components total factor productivity tfp growth and physical and human capital accumulation one reason for the lack of empirical consensus on growth determinants is that the main statistical tool in empirical studies cross country growth regressions provides very different answers depending on how the regression is specified which for this context typically amounts to the choice of control variables individual papers typically employ regressions that include modest subsets of the body of regressors that have been pro posed in the literature as a whole others employ a kitchen sink approach to evaluate the relative evidentiary support of competing growth theories in such an exercise a large number of variables are included in a regression and those variables that prove to be significant are then declared to be the important determinants of growth while the others are dismissed as unimportant rodrik et al 2002 sachs 2003

energy efficiency and financial literacy abstract financial literacy explains anomalies in a wide range of consumers financial decisions we extend the literature on financial literacy by examining its role in the purchase of energy consumer durables a setting purported to suffer from sub optimal levels of investment due to consumer mistakes we augment a standard choice experiment for purchasing a hot water system with data on financial literacy financial literacy is an economically important and statistically significant determinant of investment in energy efficiency this result is robust to incorporating individual discount rates and risk aversion as well as standard controls such as income and education indicating that financial literacy is not merely a proxy for standard demographic characteristics financial literacy also makes choices more consistent with standard consumer preferences and increases the probability that respondents select investments with the lowest lifetime discounted costs the results establish low financial literacy as a mechanism driving low investment in energy efficiency

aging and strategic learning the impact of spousal incentives on financial literacy women tend to be less financially literate than men consistent with a division of labor where husbands manage finances however women tend to outlive their husbands i find that older women acquire financial literacy as they approach widowhood 80 percent would catch up with their husbands by the expected onset of widowhood these gains are not attributable to husbands cognitive decline as captured by cognition tests the results are consistent with a model in which the division of labor collapses when a spouse dies women have incentives to delay acquiring financial human capital but also to begin learning before widowhood

boys will still be boys gender differences in trading activity are not due to differences in over confidence abstract the fact that men trade more than women in financial markets has been attributed to men s overconfidence however evidence supporting this view is only indirect we directly test this conjecture experimentally by measuring confidence using monetary incentives before participants trade in a simulated market we find that men are more confident than women in our trading task men also trade more and they hold larger and less diversified portfolios than women however we do not find that differences in confidence explain any portion of the gender gap in trading activity we explore alternative candidate channels such as risk aversion financial literacy or competitiveness but find that these factors are also unlikely to play a role

marriage and other risky assets a portfolio approach we study the joint impact of gender and marital status on financial decisions first we test the hypothesis that marriage represents in a portfolio framework a sort of safe asset and that this effect is stronger for women controlling for a number of observable characteristics we show that single women have a lower propensity to invest in risky assets than married females and males second we show that the differential behavior of single women evolves over time reflecting the increasing incidence of divorce and the expansion of female labor market participation in particular towards the end of our sample period we observe a reduction in the gap between women with different family status which can be attributed to the gradual erosion of the perception of marriage as a sort of safe asset our results therefore suggest that the differential behavior of single vs married women can be explained by the evolution of gender roles in society even after controlling for differential risk attitudes our empirical investigation is based on a dataset drawn from the 1989 2006 bank of italy survey of household income and wealth

cognition market sentiment and financial instability the purpose of this paper is to explore the role for psychology within an open system structural theory of financial instability and to consider the implications for policy while behavioural finance has drawn on ideas from psychology in order to explain evidence of behaviour that deviates from the rationality axioms it is argued that the way in which psychology is framed by this approach is unduly limiting minsky s structural theory of financial instability with its keynesian and ultimately humean roots incorporates psychology into the theoretical foundations in particular cognition and sentiment are shown to be interconnected rather than separable it is concluded that the policy implications for addressing the current crisis while apparently similar between these different approaches are in fact very different the underlying theory involves different methodology and indeed different framing from behavioural finance the way in which the crisis is understood is therefore important for policy copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

energy aesthetics and knowledge in complex economic systems it is argued that the fact that economic systems are dissipative structures must be taken fully into account in economics if we are to understand the nature of the economic ecological interface and how to deal with emergent environmental problems such as global warming such problems are a product of economic growth which is widely accepted to be the outcome of the acquisition and application of knowledge drawing upon disparate literatures within and outside economics it is argued that economic growth should be more properly viewed as the outcome of a co evolutionary process that involves the autocatalytic interaction of new knowledge and access of increasing amounts of free energy to do increasingly specialized forms of work specifically the relevance of the energy hypothesis associated with erwin schrodinger and more recently revived by eric schneider and his collaborators is assessed this hypothesis states that all dissipative structures have as their primary objective the reduction of accessible free energy gradients it is concluded that such a hypothesis cannot be rejected in the context of economic behaviour and that this opens up an important research agenda for economists

how financial literacy affects household wealth accumulation this study isolates the causal effects of financial literacy and schooling on wealth accumulation using a new household dataset and an instrumental variables iv approach financial literacy and schooling attainment are both strongly positively associated with wealth outcomes in linear regression models whereas the iv estimates reveal even more potent effects of financial literacy they also indicate that the schooling effect only becomes positive when interacted with financial literacy estimated impacts are substantial enough to imply that investments in financial literacy could have large wealth payoffs

regulating a polluting firm under asymmetric information this paper reinterprets the laffont tirole model of regulation under asymmetric information to cover the case of pollution control the asymmetry of information concerns the firm s cost of lowering its pollution the regulator has three objectives ensuring an efficient abatement level generating green taxes and securing the survival of the firm we show that when optimal abatement is important relative to tax generation the regulator cannot use the policy of offering the firm a set of linear tax schemes from which to choose by contrast this policy is optimal in the laffont tirole model under certain not very restrictive assumptions we proceed to establish a simple rule for when to shut down inefficient types in an example with specific functional forms we derive the optimal tax function both analytically and graphically we show the effect on the optimal tax system of a change in a technological parameter

survival ambiguity and welfare abstract nearly all life cycle models adopt yaari s 1965 assumption that individuals know the survival probabilities that they face given that an individual s exact survival probabilities are likely unknown we explore the implications of relaxing this assumption if there is no annuity market then the welfare cost of survival ambiguity is large and regressive ambiguity neutral individuals would pay as much as 1 of total lifetime consumption for immediate resolution of ambiguity and the bottom income quintile is 4 times worse off than the top quintile alternatively with the availability of competitive annuity contracts survival ambiguity is welfare improving because it allows competitive insurance companies to pool risk across survival types even though social security and annuities share some properties social security does not help to hedge survival ambiguity

economics coursework and long term behavior and experiences of college graduates in labor markets and personal finance i introduction if economics is a unique way of thinking as many economists like to claim some level of coursework in economics may provide enough specific knowledge and skills to lead students to make different choices in their adult roles as consumers workers and voters citizens of course the same could be claimed for training in business and other areas even though or perhaps because it could be argued that most content and training in business courses is more applied and pragmatic than what is presented in economics courses some empirical evidence though not really a great deal suggests that training in economics and business is associated with different adult behaviors and outcomes for example golec 1996 finds that mutual funds perform better if mutual fund managers have an mba and chevalier and ellison 1999 also report a positive correlation between mutual fund performance and the educational background of mutual fund managers black sanders and taylor 2003 found that economics majors earn almost 20 more than graduates in other social science majors and about 10 more than those who major in business administration in fields with large numbers of graduates they find that only engineering majors earn more than economics majors similarly hecker 1995 reported that males majoring in economics had median earnings 3 higher than all majors for the age cohort of 25 34 and 53 more than average for the cohort aged 35 44 craft and baker 2003 find that lawyers with an undergraduate major in economics earn 13 more than otherwise comparable lawyers with other undergraduate majors and economics is the only major with a statistically significant effect on earnings 1 hamermesh and donald 2008 however find that higher earnings by economics majors are partly due to economics majors working more hours than others the relationship between financial literacy knowledge and adult behavior and outcomes in financial markets has been addressed in several recent studies many sponsored by federal reserve banks hilgert hogarth and beverly 2003 and braunstein and welch 2002 find that knowledge about credit saving and investment is significantly related to recommended financial practices in cash flow management credit management saving and investment unfortunately there is also evidence of widespread financial illiteracy in u s households and particularly among elderly women see lusardi and mitchell 2007 2008 employee education programs have been found to affect workers savings retirement and investment behaviors bayer bernheim and scholz 2009 bernheim and garret 2003 state mandates for precollege education in personal finance appear to succeed in at least exposing students to more information and sources on financial education and students from states with such mandates report higher levels of savings and net worth as adults bernheim garrett and maki 2001 tennyson and nguyen 2001 much less research exists linking college coursework or majoring in economics to personal finance outcomes 2 but christiansen joensen and rangvid 2008 find that those trained in economics in college courses or employee education programs are more likely to invest in stocks than those who receive training in other areas guiso and jappelli 2005 report that among college graduates having a degree in economics is positively associated with knowledge about financial assets chert and volpe 1998 107 concluded that business majors had better knowledge about personal financial literacy than other students but that in general college students were not knowledgeable about personal finance 3 in this paper we use a large and unique data set to investigate the relationships between taking college coursework in economics or majoring in economics with long term labor market and personal finance behaviors and outcomes our information on long term behaviors and outcomes is drawn from a detailed questionnaire we mailed in january 2003 to over 25 000 graduates who attended four public universities in 1976 1986 or 1996

going green does it depend on education gender or income sustainable development entails meeting our present needs without compromising the ability of future generations to meet their needs this requires us to treat economic social and environmental aspects in an integrated way but little is known about the nature of individual preferences towards the trade offs involved in this effort for the first time we study individual preferences towards the environment social well being and financial well being by using a survey of over 1400 households in the netherlands using nonparametric parametric and matching methods we find that gender and education are important factors for sustainability rather than income levels moreover results indicate that educated females put the greatest value on going green whilst being socially minded

sine praejudicio economics and the 2014 scottish independence referendum the purpose of this paper is to analyse the contribution of expert economic opinion to the 2014 referendum campaigns on scottish independence we argue that the input from economics to both sides of the debate as well as to independent analysis was constrained by a mainstream economics framing the result was a focus on calculable outcomes predicated on unchanging institutions and behaviour and the question of currency arrangements that assumes the status quo is an optimal currency area as the consequences of constitutional change for institutions and behaviour are uncertain an equilibrium framework treats anything beyond calculable prediction as a shock inducing fear of the unknown in contrast a political economy approach is tailored to analysing uncertain developments and encompassing the broader issues relating to values democracy and power and is thus better suited to the analysis of constitutional change

economics and the self organisation approach alfred marshall revisited the economics of alfred marshall is reassessed in the light of new developments in the natural sciences whereby a nonequilibrium thermodynamic approach is adopted to analyze self organization in dissipative structures it is argued that there is a clear correspondence between marshall s treatment of time irreversibility and this modern approach particularly when the latter is set in an informational context thus his principles is viewed as a very useful starting point in adapting the self organization approach for application in economics the main features of such a post marshallian approach to economics are discussed and compared with the mechanical approach of neoclassicism copyright 1993 by royal economic society

consumer perception of deposit insurance little awareness limited effectiveness the empirical findings on bank runs and market discipline are at odds with the theoretical predictions from the literature at least in emerging markets using unique survey data from the netherlands we explore two possible explanations deposit holders may have limited knowledge of deposit insurance di schemes or they may not fully trust these schemes to be executed faithfully we find that knowledge on the eligibility for di is limited particularly when it concerns minor banks nevertheless households with more deposits have better knowledge of the di scheme and show higher levels of trust in addition deposit holders generally expect an associated payback time that well exceeds the time it has taken to pay back depositors in the past moreover consumers believe repayment is more likely and faster for large systemic banks these results confirm that both households awareness of the coverage and trust in the operations of the di scheme are suboptimal

ontology and the study of social reality emergence organisation community power social relations corporations artefacts and money the conception of social reality i have previously defended and here extend positing features such as social relations positions and powers is thoroughly naturalistic and even consistent with modern interpretations of quantum field theory it also serves to ground a social science that can be scientific in the sense of natural science this is the thesis defended here central to the argument is an emphasis on a strong form of emergence and the category of organisation in process to bring out various salient features of the position defended i take the opportunity to compare aspects of it with relevant components of the contribution of john searle whose ontological conception appears at once to be both very similar yet also very different copyright the author 2012 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

financial illiteracy and mortgage refinancing decisions we analyze the effect of an exogenous shock to the italian mortgage market where a reform has abolished prepayment fees and simplified mortgage refinancing making it a virtually cost free decision for households this law along with the considerable drop in market interest rates has generated important gains for fixed rate borrowers which we quantify at up to 15 of the principal balance nevertheless only about 13 of borrowers have locked in this opportunity we study the relationship between this sluggish behavior and their level of financial literacy

locus of control and savings abstract this paper analyzes the relationship between individuals locus of control and their savings behavior i e wealth accumulation savings rates and portfolio choices locus of control is a psychological concept that captures individuals beliefs about the causal relationship between their own behavior and life events we find that households with an internal reference person a main respondent who believes that he she can generally control relevant aspects of life save more in terms of levels and in some cases as a percentage of their permanent incomes although the locus of control gap in savings rates is largest among rich households the gap in wealth accumulation is particularly large for poor households finally our findings indicate that households with an internal reference person are in a better position to save in forms that are harder to access such as pension wealth than otherwise similar households with an external reference person

ontology and the history of economic thought the case of anti reductionism in the work of friedrich hayek tony lawson has long advocated an ontological turn in the history of economic thought this essay aims to contribute towards that goal by considering how one aspect of the methodology adopted by a prominent heterodox economist was informed by ontological considerations the economist is friedrich hayek the aspect of his methodology concerns the possibility of reductionism while the ontological category that informs his anti reductionist methodology though not as we shall see in a wholly consistent way is that of emergence the account presented below suggests that the notion of emergence played an increasingly important and also increasingly explicit role in the arguments hayek mounts against reductionism in his postwar work on theoretical psychology and social theory in the case of his theoretical psychology notwithstanding the fact that he had access to a set of concepts that afforded him the opportunity to mount an emergentist case against reductionism hayek s most prominent argument against reductionism was and remained computational rather than emergentist in nature in the case of his mature post 1960 social theory however hayek explicitly advanced a consistently emergentist case against reductionism based on the importance of organising relations for the generation of higher level structural properties such as the coordinative powers of the liberal market economy the implications of this ontologically informed discussion of hayek s arguments against reductionism for existing interpretations of hayek s work are considered

the current economic crisis its nature and the course of academic economics the current crisis has triggered significant debate concerning economic theory and policy largely absent from this debate is an informed discussion of the methods used by economists in analysing the economy and formulating their proposals but method matters here i argue that current academic research practices need to be transformed before real insight can be achieved specifically i indicate why and how a more grounded framework than that presupposed by current research practices facilitates a potentially more fruitful approach to understanding the crisis

learning to cope voluntary financial education and loan performance during a housing crisis as we write this paper at the end of 2009 delinquency and default rates on individual home mortgages have reached unprecedented levels this wave of defaults reflects a vicious combination of a deep recession a burst housing bubble and ill advised financial choices by home borrowers these effects are particularly pronounced among the least creditworthy borrowers many of whom became first time homeowners in the heady days of the bubble this experience prompted calls for increased government intervention in mortgage markets the ensuing policy discussion has centered on two key and not mutually exclusive approaches i tighter oversight of mortgage lenders and products and ii concerted efforts to educate prospective homebuyers to ensure sustainability of their financial commitments the importance of the latter approach has been buoyed by a growing body of research that showed gross inadequacies in financial literacy and the consequential nature of resulting mistakes michelle white 2007 annamaria lusardi 2008 lusardi and olivia mitchell 2008 lusardi and peter tufano 2009 sumit agarwal et al 2010 among others learning to cope voluntary financial education and loan performance during a housing crisis

inflation expectations and behavior do survey respondents act on their beliefs we compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment the survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment more importantly we find evidence that most respondents act on their inflation expectations showing patterns consistent with economic theory respondents whose behavior cannot be rationalized tend to have lower education and lower numeracy and financial literacy these findings help confirm the relevance of inflation expectations surveys and provide support to the microfoundations of modern macroeconomic models

five steps to planning success experimental evidence from us households while financial knowledge has been linked to improved financial behaviour there is lit tle consensus on the value of financial education in part because rigorous evaluation of various programmes has yielded mixed results however given the heterogeneity of financial education pro grammes in the literature focusing on generic financial education can be inappropriate and even mis leading lusardi 2009 and others argue that pedagogy and delivery matter significantly in this paper we design and field a low cost easily replicable financial education programme called five steps covering five basic financial planning concepts that relate to retirement we conduct a field experiment to evaluate the overall impact of five steps on a probability sample of the american population in different treatment arms we quantify the relative impact of delivering the programme through video and narrative formats our results show that short videos and narratives each takes about 3 minutes have sizeable short run effects on objective measures of respondent knowledge moreover keeping informational content relatively constant format has significant effects on other psychological levers of behavioural change effects on self efficacy are significantly higher when videos are used which ultimately influences knowledge acquisition follow up tests of respondents knowledge approximately 8 months after the interventions suggest that between one quarter and one third of the knowledge gain and about one fifth of the self efficacy gain persist thus this simple programme has effects both in the short run and medium run

shackle on time uncertainty and process this paper is intended both as a contribution to the conceptual work on process in economic thought and as an attempt to connect a non institutionalist non evolutionary thinker to it the paper has two principal objectives i to delineate a broad philosophically grounded conception of what an economic process theory ept is and ii to locate the contributions of george shackle within this broad conception of ept in pursuing these two objectives i hope to draw out the originality and significance of shackle s economics with a particular emphasis on what he adds to process conceptions developed within other heterodox traditions such as institutional and evolutionary economics i will also highlight some of the perceived limitations of shackle s approach and link them to the limitations of process philosophy

from simplistic to complex systems in economics the applicability of complex systems theory in economics is evaluated and compared with standard approaches to economic theorising based upon constrained optimisation a complex system is defined in the economic context and differentiated from complex systems in physio chemical and biological settings it is explained why it is necessary to approach economic analysis from a network rather than a production and utility function perspective when we are dealing with complex systems it is argued that much of heterodox thought particularly in neo schumpeterian and neo austrian evolutionary economics can be placed within a complex systems perspective upon the economy the challenge is to replace prevailing simplistic theories based in constrained optimisation with simple theories derived from network representations in which value is created through the establishment of new connections between elements

planning and financial literacy how do women fare many older us households have done little or no planning for retirement and there is a substantial population that seems to undersave for retirement of particular concern is the relative position of older women who are more vulnerable to old age poverty due to their longer longevity this paper uses data from a special module we devised on planning and financial literacy in the 2004 health and retirement study it shows that women display much lower levels of financial literacy than the older population as a whole in addition women who are less financially literate are also less likely to plan for retirement and be successful planners these findings have important implications for policy and for programs aimed at fostering financial security at older ages

the expected price of keeping up with the joneses abstract inflation expectations elicited in surveys have been found to exhibit large dispersion across individuals although several explanations have been proposed none fully explain this puzzle we explore in this paper a new behavioral factor social comparison using original survey data we find that respondents who feel they are falling behind compared to their peers report significantly and substantially higher inflation expectations we argue that this result is consistent with an experience based belief formation model in which those unable to keep up with the joneses overweight the high prices of aspiration goods they are unable to purchase

financial literacy and its consequences evidence from russia during the financial crisis the ability of consumers to make informed financial decisions improves their ability to develop sound personal finance this paper uses a panel data set from russia an economy in which household debt has grown at an astounding rate to examine the importance of financial literacy and its effects on behavior the paper studies both the financial and real consequences of financial illiteracy even though consumer borrowing increased very rapidly in russia only 41 of respondents demonstrate an understanding of interest compounding and only 46 can answer a simple question about inflation financial literacy is positively related to participation in financial markets and negatively related to the use of informal sources of borrowing moreover individuals with higher financial literacy are significantly less likely to report experiencing a negative income shock during 2009 and have greater availability of unspent income and higher spending capacity the relationship between financial literacy and availability of unspent income is higher in 2009 suggesting that financial literacy may better equip individuals to deal with macroeconomic shocks

gender stock market participation and financial literacy abstract women participate less than men in the stock market and score lower on financial literacy we explore the link between this gender gap in stock market participation and financial literacy using survey data on a random sample of 1300 individuals that is representative of the swedish population we show that the estimated gender gap in stock market participation diminishes when we control for basic financial literacy essentially a measure of numeracy a gender gap in risk taking remains significant also when controlling for financial literacy

the effects of financial education in the workplace evidence from a survey of households abstract we use a novel household survey to investigate the effects of employer based financial education on personal saving we explore cross sectional relations between the availability of employer based financial education and various measures of asset accumulation and we interpret these patterns in light of various potentially confounding factors our findings favor the hypothesis that employer based financial education stimulates saving both in general and for retirement

econometric modelling in the presence of evolutionary change a methodology is offered which can be used to construct an econometric model in the presence of structural change of an evolutionary type the theoretical basis for such modelling is drawn from the self organisation approach and operationalised in the context of the logistic diffusion growth model the latter is augmented to allow for the impact of exogenous effects upon both the diffusion rate and boundary limit we show how the hypothesis of augmented logistic diffusion can be falsified using econometric methods an illustrative case study is used namely the growth and decline of australian building society deposits with the aid of this example it is shown how the approach could be of use to both economic forecasters and regulators in conditions of structural change where conventional econometric methods are often inappropriate jel classification c51 c53 e42 e47 g18 o31

the economic importance of financial literacy theory and evidence this paper undertakes an assessment of a rapidly growing body of economic research on financial literacy we start with an overview of theoretical research which casts financial knowledge as a form of investment in human capital endogenizing financial knowledge has important implications for welfare as well as policies intended to enhance levels of financial knowledge in the larger population next we draw on recent surveys to establish how much or how little people know and identify the least financially savvy population subgroups this is followed by an examination of the impact of financial literacy on economic decision making in the united states and elsewhere while the literature is still young conclusions may be drawn about the effects and consequences of financial illiteracy and what works to remedy these gaps a final section offers thoughts on what remains to be learned if researchers are to better inform theoretical and empirical models as well as public policy jel a20 d14 g11 i20 j26

noncognitive abilities and financial distress evidence from a representative household panel this paper provides evidence of how noncognitive abilities affect financial distress in a representative panel of households we find that people in the bottom quintile of noncognitive abilities are 10 times more likely to experience financial distress than those in the top quintile we provide evidence that this relation largely arises from worse financial choices and lack of financial insight by low ability individuals and reflects differential exposure to income shocks only to a lesser degree we mitigate endogeneity concerns using an iv approach and an extensive set of controls implications for policy and finance research are discussed received september 24 2017 editorial decision september 26 2018 by editor stijn van nieuwerburgh authors have furnished an internet appendix which is available on the oxford university press web site next to the link to the final published paper online

why do people save in cash distrust memories of banking crises weak institutions and dollarization abstract the paper analyzes why households hold sizeable shares of their assets in cash at home rather than at banks a phenomenon that is widespread in many economies but for which information is scarce using survey data from ten central eastern and southeastern european countries i document the relevance of this behavior and show that cash preferences cannot be fully explained by whether people are banked or unbanked the analysis reveals that a lack of trust in banks memories of past banking crises and weak tax enforcement are important factors moreover cash preferences are stronger in dollarized economies where a safe foreign currency serves as a store of value

who holds the purse strings within the household the determinants of intra family decision making abstract we study the determinants of intra household decision making responsibility over economic and financial choices using a direct measure provided in the 1989 2010 bank of italy survey of household income and wealth we find that the probability that the wife is responsible for decisions increases as the wife s characteristics in terms of age education and income become closer or even higher than those of her husband s thus consistently with a bargaining approach decision making responsibility is associated with marriage heterogamy and not only along strictly economic dimensions however in support of an alternative household production approach we also find that the probability that the wife is responsible is lower when she is employed which suggests the presence of a specialization pattern assigning responsibility to the spouse with more available time our results are robust to additional controls and alternative samples

employee financial literacy and retirement plan behavior a case study this article uses administrative data on all active employees of the federal reserve fr system to examine participation in and contributions to the thrift saving plan the system s defined contribution dc plan we link to administrative records a unique employee survey of economic demographic factors including a set of financial literacy questions not surprisingly fr employees are substantially more financially literate than the population at large most importantly financially savvy employees are also most likely to participate in their dc plan sophisticated workers contribute three percentage points more of their earnings to the dc plan than do the less knowledgeable and they hold more equity in their pension accounts we examine changes in employee plan behavior 1 year after employees completed a learning module about retirement planning and we compare it to baseline patterns we find that those employees who completed the learning module were more likely to start contributing and less likely to have stopped contributing to the dc plan postsurvey in sum employer provided learning programs are shown to significantly impact employee retirement saving decisions and consistent with a lot of other research higher levels of financial literacy are found to have a beneficial impact on retirement saving patterns jel j3 h7

financial literacy and financial behaviour experimental evidence from rural rwanda we organise a field experiment with smallholder farmers in rwanda to measure the impact of financial literacy training on financial knowledge and behaviour the training increased financial literacy of participants changed their savings and borrowing behaviour and had a positive effect on the new business start up however it failed to have a significant short term impact on income using a two stage regression framework we identify enhanced financial literacy as one of the important factors explaining behavioural changes we also test whether financial knowledge spillovers from trained farmers to their peers in local village banks but find no evidence for that

baby boomer retirement security the roles of planning financial literacy and housing wealth abstract we compare wealth holdings across two cohorts of the health and retirement study the early baby boomers in 2004 and individuals in the same age group in 1992 levels and patterns of total net worth have changed relatively little over time though boomers rely more on housing equity than their predecessors most important planners in both cohorts arrive close to retirement with much higher wealth levels and display higher financial literacy than non planners instrumental variables estimates show that planning behavior can explain the differences in savings and why some people arrive close to retirement with very little or no wealth

social interactions in asset allocation decisions evidence from 401 k pension plan investors abstract this paper investigates social interaction effects on individual asset allocation decisions using a rich dataset of 159 329 individuals enrolled in 401 k plans we find that individuals are likely to increase decrease their risk shares when their coworkers have higher lower risk exposures over the last quarter the social interaction effects are especially strong among individuals with extreme asset allocations and low equity investment performance we also divide the workplaces into subgroups to examine how social interaction effects vary among coworkers with different backgrounds results from additional tests indicate that estimated social interaction effects are not primarily driven by common preferences common environments or reverse causality

succession financing in family firms business succession is one of the primary management challenges for family firms however many family firms fail at this task because of financial issues although a vast number of studies have investigated the succession process research thus far has failed to determine how and why family firms select particular forms of financing for succession related expenditures accordingly this study conceptually and empirically investigates succession financing we introduce a conceptual framework that investigates the reasons behind an owner manager s intent to use debt for succession financing specifically our model accounts for general and succession related personal factors however we also include a set of firm specific financing behavioral controls in our research the empirical results are derived from a sample of 187 german family firms and the results highlight financial knowledge attitudes succession experience and succession planning as significant determinants of the owner managers debt usage intentions the implications and avenues for future research are discussed

intensifying financial inclusion through the provision of financial literacy training a gendered perspective this study examines the impact of financial literacy training on financial inclusion and its intensity using data collected from a randomised control trial an additive index of financial inclusion

optimal financial knowledge and wealth inequality we show that financial knowledge is a key determinant of wealth inequality in a stochastic life cycle model with endogenous financial knowledge accumulation where financial knowledge enables individuals to better allocate lifetime resources in a world of uncertainty and imperfect insurance moreover because of how the us social insurance system works better educated individuals have most to gain from investing in financial knowledge our parsimonious specification generates substantial wealth inequality relative to a one asset saving model and one in which returns on wealth depend on portfolio composition alone we estimate that 30 40 percent of retirement wealth inequality is accounted for by financial knowledge

institutional and individual investors saving for old age this paper brings together the academic literature on individual and institutional investors in order to understand the nature of difficulties faced by them and set the background for the special issue this introductory article and the papers in the special issue contribute to the debate on how to support individuals in their savings commitments and investment decision making and whether and how institutional investors have fulfilled their role in supporting the development of the funded pension industry there are three main conclusions i individual investors are not ready for the role that has been assigned to them in the pension industry ii institutional investors are a long way short of establishing healthy relational contracts and trustworthy relationships with their clients and iii more effective regulation may be needed

what you don t know can t help you pension knowledge and retirement decision making abstract this paper provides an answer to an important empirical puzzle in the retirement literature while most people know little about their own pension plans retirement behavior is strongly affected by pension incentives we combine administrative and self reported pension data to measure the retirement response to actual and perceived financial incentives and document an important role for self reported pension data in determining retirement behavior well informed individuals are far more responsive to pension incentives than the average individual ill informed individuals seem to respond systematically to their own misperceptions of pension incentives

the gender effect in risky asset holdings abstract we study the relation between gender and stock holdings in finland a particularly gender equal country we show that it is crucial to control for risk aversion using a measure of subjective risk taking rather than measures derived from abstract gambles controls related to financial knowledge and resources also explain the gender difference the residual effect of the male gender on the conditional equity share after all appropriate controls is 3 percentage points and statistically significant the effect on stock market participation on the other hand is close to zero or negative so men contribute more to the nonparticipation puzzle conditional on covariates the gender difference mainly works through women s higher risk aversion which we find extends to finance professionals and wealthy private banking customers

teaching teenagers in finance does it work abstract many initiatives worldwide aim at improving financial literacy through targeted education programs yet there is little evidence regarding their effectiveness we examine the impact of a short financial education program on teenagers in german high schools our findings reveal that the training program significantly increases teenagers interest in financial matters and their financial knowledge especially their ability to properly assess the riskiness of assets behaviorally we observe a decrease in the prevalence of self reported impulse purchases but at the same time find no evidence of a significant increase in savings

case based decision theory this paper suggests that decision making under uncertainty is at least partly case based we propose a model in which cases are primitive and provide a simple axiomatization of a decision rule that chooses a best act based on its past performance in similar cases each act is evaluated by the sum of the utility levels that resulted from using this act in past cases each weighted by the similarity of that past case to the problem at hand the formal model of case based decision theory naturally gives rise to the notions of satisficing decisions and aspiration levels

wealth accumulation and the propensity to plan why do similar households end up with very different levels of wealth we show that differences in the attitudes and skills with which they approach e nancial planning are a signie cant factor we use new and unique survey data to assess these differences and to measure each household s propensity to plan we show that those with a higher such propensity spend more time developing e nancial plans and that this shift in planning is associated with increased wealth these e ndings are consistent with broad psychological evidence concerning the benee cial impacts of planning on goal pursuit those with a high propensity to plan may be better able to control their spending and thereby achieve their goal of wealth accumulation we e nd direct evidence supporting this effortful self control channel in the very strong relationship we uncover between the propensity to plan and budgeting behavior

economic emergence an evolutionary economic perspective abstract the standard neoclassical approach to economic theorising excludes by definition economic emergence and the related phenomenon of entrepreneurship we explore how the most economic of human behaviours entrepreneurship came to be largely excluded from mainstream economic theory in contrast we report that evolutionary economists have acknowledged the importance of understanding emergence and we explore the advances that have been made in this regard we go on to argue that evolutionary economics can make further progress by taking a more naturalistic approach to economic evolution this requires that economic analysis be fully embedded in complex economic system theory and that associated understandings as to how humans react to states of uncertainty be explicitly dealt with we argue that knowledge because of the existence of uncertainty is to a large degree conjectural and thus is closely linked to our emotional states our economic behaviour is also influenced by the reality that we and the systems that we create are dissipative structures thus we introduce the notions of energy gradients and knowledge gradients as essential concepts in understanding economic emergence and resultant economic growth

barriers to formal saving micro and macroeconomic effects this paper examines different barriers to formal saving considering various interventions and their possible effects at microeconomic and macroeconomic levels it presents a comprehensive review of the literature based on a detailed classification of the barriers associated with supply side factors related to access to financial products and demand side barriers related to the use and frequency of use of those products the paper concludes that this classification and analysis contributes to a fuller understanding of the question of financial inclusion and how to achieve it

leaving the mainstream behind uncovering subjective understandings of economics instructors roles in the wake of the economic crisis a number of student organizations and researchers highlighted the lack of pluralism and heterodox approaches in economics curricula the relevance of pluralism becomes clear once set within the implications of a given scientific discourse on reality e g economics and policy making this study explores the role of instructors in co constructing the pluralism discourse and debates while recognizing the role of institutional obstacles to change within the discipline an empirical field study is conducted with lecturers in introductory economics courses at the wu vienna university of economics and business where they place themselves within the pluralism discourse via a q study a mixed method employed for studying subjectivity in socially contested topics in q a set of statements undergo a sorting procedure on a relative ranking scale followed by factor rendering four voices are identified moderate pluralist mainstreamers responsible pluralists and applied pluralists the implications of their ideas are discussed from the viewpoint of discursive institutionalism stressing the role of ideas and discourse in institutional change although a discursive readiness for changes towards more pluralism is claimed strategies for overcoming the difficulties on the institutional level need to be developed

notions of order and process in hayek the significance of emergence this article explores the notions of order and process to which friedrich hayek subscribed it is argued that a satisfactory understanding of hayek s conceptions of order and process and in particular a clear understanding of those how the two concepts relate to each other in his scheme of thought requires an appreciation of the ontological categories of emergence and emergent properties ultimately for hayek the capacity of liberal market economies to co ordinate people s actions in the face of tacit and dispersed knowledge is an emergent property that arises only when people s interactions are governed by certain sets of rules this static analysis of the co ordinative powers of the market as an emergent property of a given system of rules must be supplemented by a dynamic account of the process through which the set of rules in question comes into being hayek provides such an account in his account of society as developing through a multi level evolutionary process key implications of hayek s accounts of order and process for debates about the co ordinative powers of free market economies are drawn out

addressing uncertainty in economics and the economy this article explores the way society in general and economists in particular deal with fundamental uncertainty it is argued that uncertainty is interdependent with the evolution of institutions and behaviour including that designed to help society cope with uncertainty whilst some mainstream theory does address uncertainty it employs a much narrower concept than fundamental uncertainty generally in spite of the evident increase in fundamental uncertainty during the crisis most mainstream theory ignores it although ignoring uncertainty can sometimes be a successful coping mechanism it is argued that as a blanket coping mechanism ignoring uncertainty seriously limits the realism of theory and therefore also practice and policy it is concluded that economists should embrace uncertainty by tailoring methodologies and theories to address it this would provide a more fruitful basis for policy aimed at reducing uncertainty in the economy and also reducing our own uncertainty

financial education and behavioral finance new insights into the role of information in financial decisions recent empirical evidence based on surveys and experimental activities within the fields of behavioral finance and financial education has offered economists new empirically based insights into how individuals use information in making financial decisions specifically the importance of information in financial decisions may be reduced or eliminated by psychological aspects of the individual such as a state of overconfidence that is individual or shared with a group or by the individual s limited ability to process complex and abundant information this paper aims to complement this emerging body of literature by studying how individuals perceive and process information when making financial decisions we review these contributions and suggest a number of broad guidelines that can provide a framework for future discussion of this topic within financial decision theory

time inconsistency and retirement planning while standard models assume households have no trouble planning for retirement some researchers have argued that households vary in their propensity to plan and that the degree of retirement planning is a key determinant of household saving lusardi and mitchell 2007 as a result there is signi cant world wide eort to measure and improve nancial literacy and retirement planning to our knowledge this paper is the rst to quantify the welfare gains associated with improved retirement planning we nd that a modest increase in a household s planning horizon by just a few years so that the household begins planning for retirement a few years earlier than otherwise provides welfare gains that can be as large as the gains traditionally ascribed to the elimination of business cycles and idiosyncratic risks given the size of these welfare gains we believe that eorts to improve nancial literacy and retirement planning are worth the utmost attention of economists policymakers and educators

the anatomy of emergence with a focus upon capital formation abstract emergence is a unifying theme of both evolutionary economics and complex systems theory in spite of this centrality emergence in economics has not been subject to an extensive critical analysis this paper remedies this deficit we identify several conditions that economic patterns i e rule systems structures must satisfy to qualify as emergent 1 material realization emergent patterns are realized in physical structures and processes 2 coherence pattern is not a mere aggregate but a systemic whole 3 non distributivity pattern possesses global properties absent from its parts 4 structure dependence systemic properties depend upon connective structure these four core features are common to all forms of emergence in economics evolutionary economic systems also exhibit extra strength versions of emergence which require that patterns possess one or more additional features 5 genuine novelty 6 unpredictability in principle and 7 irreducibility we introduce three basic forms of emergence that occur in economic systems minimal diachronic and synchronic emergence and apply these ideas to capital formation at all levels of economic order the economy wide capital structure exhibits strongly emergent properties both diachronic and synchronic that depend on its structural and functional organization it is not a mere aggregate of capital goods within the realm of capital phenomena we also compare the distinguishing characteristics of emergent and spontaneous self organizing orders we provide a case study of the iphone as an emergent capital pattern to illustrate conditions 1 7 above and the different types of emergence

borrowing on the wrong credit card evidence from mexico abstract we establish new facts about the way consumers allocate debt among their credit cards using data for a representative sample of cardholders in mexico we find that relative prices are weak predictors of the allocation of debt purchases and payments consumers allocate a large fraction of their debt to high interest cards incurring a cost of 31 percent above the minimum using an experiment we find that consumers do not substitute in the price margin although they respond to salient temporary low interest offers we conclude that limited attention and mental accounting best rationalize our results and discuss implications for the market jel d14 g21 o12 o16

technology and economic theory technology and technological change play a central role in economics whether in the theory of resource allocation or in the theory of growth and development yet the nature of technology is largely ignored in economic theory it being considered sufficient to treat technology as a constraint on productive opportunities this short essay delves a little deeper into the nature of technology and the material energy and information transformation processes that it represents a deeper understanding of technology leads to a deeper understanding of the main currents of technological advance and to the reasons why the development of technology and its application are so uneven over time and place copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

restoring rational choice the challenge of consumer financial regulation abstract this lecture considers the case for consumer financial regulation in an environment where many households lack the knowledge to manage their financial affairs effectively the lecture argu

knowledge information and retirement saving decisions evidence from a large scale intervention in chile all over the world retirement income depends increasingly on individuals savings choices over their lifetime while government sponsored retirement schemes like the u s social security system provide a reasonable stream of resources for old age middle and high income workers are expected to make their own additional savings arrangements either through employer sponsored pension plans matching contribution schemes such as the 401 k plans in the united states or individual savings through tax favored investment vehicles 1to adequately plan for retirement individuals need information about their current situation the different choices available to them and some minimal mathematical and abstraction capabilities to properly process this information there is growing concern however regarding the low level of financial literacy among the general population the baby boomer generation does not seem to have accumulated sufficient financial wealth beyond housing with particularly low asset levels for female headed households 2 even if the lack of financial sophistication could be overcome by the use of retirement planning services the existing evidence suggests that these services are rarely sought and when they are it is mostly by individuals with initially higher levels of financial literacy 3 furthermore individuals with less exposure to financial planning tend to make wrong choices saving less than required in poorly diversified portfolios or not profiting from tax favored instruments 4in a defined contribution scheme the level of the benefit is not known beforehand and individuals face uncertainty about how their current savings will translate into future benefits in this setting one key piece of information that individuals need to make active decisions to improve their retirement wealth is the pension level they are expected to receive given their current financial wealth and their historical saving behavior assuming that individuals can reasonably form an expectation of the income level they would like to receive in old age the comparison between desired and projected income could induce them to save more transfer their wealth into more conservative or aggressive portfolios postpone retirement or seek retirement planning advice while it is always possible to make these adjustments the effectiveness of these choices depends on the time horizon until retirement while small changes when one is young can have a large impact on retirement individuals with low asset levels can do little to improve their situation as they approach retirement age except perhaps postpone their exit from the labor force in this article we exploit a large scale natural experiment to analyze the impact of a personalized pension projection ppp which was sent to practically all chilean active dependent workers in july 2005 on their retirement saving behavior the objective of this intervention was to simplify the information received by pension system members to help them make better decisions in essence we compare the saving behavior of individuals during the first twelve months after they received the ppp with that of comparable individuals who were not sent this statement due to some specific administrative rules we use this analysis to address two different issues first if individuals were well aware of their current financial stance receipt of this information should have no effect on their retirement related saving behavior our analysis serves as a test of the full information hypothesis second the large scope of the intervention allows us to look at different subgroups of the population as mentioned above the age dimension is particularly important since the possibility of correcting misalignments between expectations and projections depends crucially on the time horizon until retirement the gender dimension is also important for the chilean case as the actuarial nature of the chilean pension system tends to directly translate gender differences in the labor market into differences in their old age income chilean women tend to work less frequently receive lower wages for a comparable job retire earlier and live longer

non bayesian decision theory ahead of its time the case of g l s shackle this article deals with the reception of george l s shackle s volume expectation in economics introducing a unique attempt to discard the probability framework in the investigation of behaviour under uncertainty through a fresh reading of the textual evidence including correspondence held at cambridge university library the article assesses why decision theorists interest in shackle s theory substantial during the 1950s faded away in the early 1960s the article argues that apart from shackle s refusal to comprehend that his critics were under the influence of a new subjective probability perspective a major explanation of the dismissal of his work stays in shackle s stance not to establish a collaborative link with those critics who showed a positive attitude towards his theory the article shows though that the discussion between shackle and his critics hinged on a number of topics that are still crucial to the current developments of decision theory

who is a passive saver under opt in and auto enrollment abstract defaults have been shown to have a powerful effect on retirement saving behavior yet there is limited research on who is most affected by defaults and whether this varies based on features of the choice environment using administrative data on employer sponsored retirement accounts linked to survey data we estimate the relationship between retirement saving choices and individual characteristics long term discounting present bias financial literacy and exponential growth bias under two distinct choice environments an opt in regime and an auto enrollment regime consistent with our conceptual model we find that the determinants of following the default and contribution behavior are regime specific under the opt in regime financial literacy plays an important role in predicting total contributions active saving choices and maxing out contributions in the tax preferred account in contrast under the auto enrollment regime present bias is the most significant behavioral predictor of contribution behavior a causal interpretation of the estimates suggests that auto enrollment increases saving primarily among those with low financial literacy

predicting retirement savings using survey measures of exponential growth bias and present bias in a nationally representative sample we predict retirement savings using survey based elicitations of exponential growth bias egb and present bias pb we find that egb the tendency to neglect compounding and pb the tendency to value the present over the future are highly significant and economically meaningful predictors of retirement savings these relationships hold controlling for cognitive ability financial literacy and a rich set of demographic controls we address measurement error as a potential confound and explore mechanisms through which these biases may operate back of the envelope calculations suggest that eliminating egb and pb would increase retirement savings by approximately 12 percent

institutions economics and the development quest institutions crucial for the analysis of how agents deal with uncertainty have been gaining increasing relevance on the economic research agenda in this paper we analyze the institutional literature aiming to explain why this perspective obtains better results than others in development economics in particular we stress the relevance of new institutional economics as an adequate framework for a broad understanding of development issues

shackle on choice imagination and creativity hayekian foundations this paper develops a response to some of the criticisms that have been made of g l s shackle s analysis of human decision making because of its reliance on a cartesian account of the mind it is argued that the basis for a response can be found in the work on theoretical psychology developed by shackle s fellow subjectivist and one time phd supervisor f a hayek in particular the ideas advanced by hayek in his 1952 book the sensory order can be used to provide an account of the mind that avoids the shortcomings of shackle s cartesianism whilst still doing justice to his emphasis on genuine choice expectations and the role of creativity and the imagination in human decision making

uncertainty and imagination illusion and order shackleian connections shackle s work has many connections to economic scientific and philosophical ideas and also to the practicalities of economic organization and business management uncertainty is not only a pervasive problem but a necessary condition for human intelligence initiative and imagination unpredictability is essential to both scientific progress and entrepreneurship we create knowledge by making patterns that enable us to impose order and envisage new combinations in an evolutionary process driven by human purpose of competing and complementary conjectures many of which turn out to be false representations though academia was shackle s natural environment he was always concerned with applicability and testament to the practical relevance of his ideas is provided by two former senior managers with particular emphasis on the fundamental and domain specific issues of what to think about and how to think about it copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

the effects of pension funds on markets performance a review the worldwide reforming process of pension systems triggered by the demographic transition and globalization has led several countries to implement multi pillar pension systems and enhance pension funds for this reason the studies on the effects that pension funds exert on markets performance have been flourishing in the last decades in this paper we provide an updated review of the empirical advances in this field of study with particular focus on the effects that pension funds produce on labour markets financial markets and economic growth

financial literacy information flows and caste affiliation empirical evidence from india abstract this paper empirically investigates the relevance of social interaction and caste affiliation for individual awareness of financial instruments and investment behavior of households in india the results of our empirical analysis which is based on a large scale survey on saving patterns of indians suggest a positive relationship between financial literacy and social interaction however especially backward caste people living in regions with a large fraction of backward castes have a lower probability of being aware of various financial instruments in contrast we find only weak empirical evidence for a direct effect of caste affiliation and social interaction on investment behavior

the effects of perceived and actual financial literacy on financial behaviors a combined measure of financial literacy that includes both a test score of actual financial literacy and a self rating of overall financial literacy is used in this study we find that the combined measure appears to provide greater understanding about how financial literacy affects financial behaviors a large national survey of u s adults and households n 28 146 was used to investigate how this overall financial literacy is likely to change financial behaviors across five financial topics credit cards investments loans insurance and financial advice for each topic we include 4 5 financial behaviors 22 in total to demonstrate the consistency of the findings within and across topics although we are unable to identify a causal relationship the results from the probit analysis show that both actual and perceived financial literacy appear to influence financial behaviors and that perceived financial literacy may be as important as actual financial literacy jel d14 g00