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Culture and portfolios: trust, precautionary savings and home ownership

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  • Fleck, Johannes
  • Monninger, Adrian

Abstract

This paper shows that individual beliefs on the effectiveness of formal and informal sources of risk sharing determine financial precautionary behavior. We present empirical evidence demonstrating that higher trust in public insurance systems reduces net liquid wealth while higher trust in communal insurance increases it. This dichotomy is consistent with theories on access to private risk sharing networks. Moreover, we find that both types of trust associate positively with the probability to take on financial risk for the purpose of becoming a homeowner and the related loan-to-value ratio. Our findings are robust across a wide range of econometric controls and specifications. JEL Classification: D14, D31, E71, G5

Suggested Citation

  • Fleck, Johannes & Monninger, Adrian, 2020. "Culture and portfolios: trust, precautionary savings and home ownership," Working Paper Series 2457, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20202457
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    More about this item

    Keywords

    household saving; portfolio liquidity; public and communal insurance;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • G5 - Financial Economics - - Household Finance

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