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

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  • Bucher-Koenen, Tabea
  • Ziegelmeyer, Michael

Abstract

We study how and to what extent private households are affected by the recent financial crisis and how their financial decisions are influenced 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 long-term consequences if individuals do not participate in markets' recovery and face lower returns in the long run. JEL Classification: D91, D14, G11

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 1299.

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Date of creation: Feb 2011
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Handle: RePEc:ecb:ecbwps:20111299

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Keywords: cognitive ability; financial crisis; financial literacy; life-cycle savings; Portfolio Choice; saving behavior;

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References

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Citations

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Cited by:
  1. 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.
  2. Michael Ziegelmeyer & Julius Nick, 2012. "Backing out of private pension provision - Lessons from Germany," BCL working papers 74, Central Bank of Luxembourg.
  3. 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.
  4. 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.
  5. Tabea Bucher-Koenen & Annamaria Lusardi, 2011. "Financial Literacy and Retirement Planning in Germany," NBER Working Papers 17110, National Bureau of Economic Research, Inc.

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