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Who lost the most? Financial Literacy, Cognitive Abilities, and the Financial Crisis --- forthcoming Review of Finance ----

  • Bucher-Koenen, Tabea

    ()

  • Ziegelmeyer, Michael

    ()

    (Munich Center for the Economics of Aging (MEA))

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.

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Paper provided by Munich Center for the Economics of Aging (MEA) at the Max Planck Institute for Social Law and Social Policy in its series MEA discussion paper series with number 11234.

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Date of creation: 10 Jan 2011
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Handle: RePEc:mea:meawpa:11234
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