Who lost the most? Financial literacy, cognitive abilities, and the financial crisis

Bucher-Koenen, Tabea ; Ziegelmeyer, Michael

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URL: https://madoc.bib.uni-mannheim.de/3054
Additional URL: http://mea.mpisoc.mpg.de/uploads/user_mea_discussi...
URN: urn:nbn:de:bsz:180-madoc-30540
Document Type: Working paper
Year of publication: 2011
The title of a journal, publication series: MEA Discussion Papers
Volume: 234-2011
Place of publication: Mannheim
Publication language: English
Institution: Außerfakultäre Einrichtungen > VWL insb Makroök u Wirtschaftspol (Börsch-Supan 1989-2011)
MADOC publication series: Veröffentlichungen des MEA (Mannheim Research Institute For the Economics of Aging) > MEA Discussion Papers
Subject: 330 Economics
Classification: JEL: D91 D14 G11 ,
Subject headings (SWD): Finanzkrise , Wirtschaftliches Verhalten , Sparverhalten , Kognitive Kompetenz , Einfluss , Sozioökonomisches Panel
Keywords (English): financial literacy , cognitive ability , financial crisis , life-cycle savings , saving behavior , portfolio choice
Abstract: 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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