IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v92y2018icp295-310.html
   My bibliography  Save this article

It takes two to Tango: Households’ response to financial advice and the role of financial literacy

Author

Listed:
  • Stolper, Oscar

Abstract

Using a unique dataset of over 6000 clients of a German advisory firm who have received rule-based financial advice on basic retirement provision and the insurance of major life risks, we investigate households’ response to advice when the risk of product misselling is effectively minimized. Overall, we document a low degree of following standardized financial advice: two thirds of the households under review ignore the advice completely and if they choose to heed it, they tend to follow it only to a relatively little extent. Moreover, we find that standardized financial advice is not able to break up the negative effect of financial literacy on following advisors’ recommendations. Instead, even in a setting where the potential for misselling is mitigated, the negative impact of advisees’ financial knowledge on their propensity to implement financial advice remains statistically and economically significant for all advisees under review except for the affluent households. Our findings support the notion that an increase in financial literacy leads to a higher confidence in one's own judgment and prompts individuals to use financial advice as just another source of information they process when making their financial decisions.

Suggested Citation

  • Stolper, Oscar, 2018. "It takes two to Tango: Households’ response to financial advice and the role of financial literacy," Journal of Banking & Finance, Elsevier, vol. 92(C), pages 295-310.
    • Handle: RePEc:eee:jbfina:v:92:y:2018:i:c:p:295-310
    DOI: 10.1016/j.jbankfin.2017.04.014
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426617301024
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.jbankfin.2017.04.014?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Financial advice; Financial literacy; Household finance; Retirement provision;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:92:y:2018:i:c:p:295-310. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.