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Does product familiarity matter for participation?

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  • Fuchs-Schündeln, Nicola
  • Haliassos, Michael

Abstract

Household access to financial products is often conditioned on previous use. However, banning access when learning is possible may be discriminatory or counterproductive. The 'experiment' of German reunification (exogenously) offered to East Germans unconditional access to (exogenously) unfamiliar capitalist products. Controlling for characteristics, East Germans participated immediately, were as likely to use unfamiliar risky securities as West Germans, and more likely to use consumer debt, without signs of regret. Our results suggest that mistakes of unfamiliar households can be prevented by a knowledgeable and well-incentivized financial sector and by interaction with familiar peers. This implies that regulation should refocus on the financial sector rather than on prohibiting individuals to gain familiarity with financial products.

Suggested Citation

  • Fuchs-Schündeln, Nicola & Haliassos, Michael, 2015. "Does product familiarity matter for participation?," SAFE Working Paper Series 63, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  • Handle: RePEc:zbw:safewp:63
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    References listed on IDEAS

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    Cited by:

    1. Davoli, Maddalena & Hou, Jia, 2018. "Financial literacy and socialist education: Lessons from the German reunification," SAFE Working Paper Series 217, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
    2. Sauter, Nicolas, 2015. "Social networks as a catalyst of economic change," Economics Letters, Elsevier, vol. 134(C), pages 45-48.
    3. repec:mea:meawpa:14282 is not listed on IDEAS

    More about this item

    Keywords

    Household finance; familiarity; regulation; investor protection; financialliteracy; stockholding; household debt; consumer credit; social interactions; counterfactual analysis; German reunification;

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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