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Who lost the most? Financial Literacy, Cognitive Abilities, and the Financial Crisis

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  • Tabea Bucher-Koenen

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  • Michael Ziegelmeyer

    ()

Abstract

We study how and to what extent private households are affected by the recent financial crisis and how their financial decisions are inuenced 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.

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File URL: http://www.bcl.lu/fr/publications/cahiers_etudes/54/BCLWP054.pdf
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Bibliographic Info

Paper provided by Central Bank of Luxembourg in its series BCL working papers with number 54.

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Length: 42 pages
Date of creation: Feb 2011
Date of revision:
Publication status: forthcoming as: "Once burned, twice shy? Financial literacy and wealth losses during the financial crisis?, Review of Finance, forthcoming
Handle: RePEc:bcl:bclwop:bclwp054

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Web page: http://www.bcl.lu/

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

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Citations

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Cited by:
  1. Annamaria Lusardi & Olivia S. Mitchell, 2013. "The Economic Importance of Financial Literacy: Theory and Evidence," NBER Working Papers 18952, National Bureau of Economic Research, Inc.
  2. Ziegelmeyer, Michael & Nick, Julius, 2012. "Backing out of private pension provision - Lessons from Germany," MEA discussion paper series 12262, Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy.
  3. Tabea Bucher-Koenen & Annamaria Lusardi, 2011. "Financial Literacy and Retirement Planning in Germany," NBER Working Papers 17110, National Bureau of Economic Research, Inc.
  4. Winter, Joachim & Lührmann, Melanie & Serra-Garcia, Marta, 2013. "The effects of financial literacy training: Evidence from a field experiment in German high schools," Munich Reprints in Economics 19722, University of Munich, Department of Economics.
  5. Dick, Christian D. & Jaroszek, Lena M., 2013. "Knowing what not to do: Financial literacy and consumer credit choices," ZEW Discussion Papers 13-027, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  6. Xu, Lisa & Zia, Bilal, 2012. "Financial literacy around the world : an overview of the evidence with practical suggestions for the way forward," Policy Research Working Paper Series 6107, The World Bank.
  7. Lührmann, Melanie & Serra-Garcia, Marta & Winter, Joachim, 2012. "Teaching teenagers in finance: does it work?," Discussion Papers in Economics 14101, University of Munich, Department of Economics.

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