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Billions on the Sidewalk: Improving Savings by Reducing Investment Mistakes

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Abstract

This paper contributes the on-going debate on income inequality in advanced economies with a proposal aimed at reducing costly investment mistakes that are prevalent among middle-class households. The paper starts by describing how households should invest, compares it with what we know about how households do invest, and highlights discrepancies between the two (investment mistakes). After evaluating the costs of investment mistakes, the paper suggests that they could be reduced by accommodating cognitive biases through a simple process of ?nancial education and appropriate default options. The policy described in this paper is immediately actionable at basically no cost and can have a large e¤ect on the welfare of middle-class households in advanced economies.

Suggested Citation

  • Ugo Panizza, 2015. "Billions on the Sidewalk: Improving Savings by Reducing Investment Mistakes," IHEID Working Papers 18-2015, Economics Section, The Graduate Institute of International Studies.
  • Handle: RePEc:gii:giihei:heidwp18-2015
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    More about this item

    Keywords

    Household Finance; Inequality; Growth;

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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