nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2018‒09‒03
two papers chosen by

  1. Banking and Financial Access Reforms, Labor Markets, and Financial Shocks By Alan Finkelstein Shapiro; Brendan Epstein
  2. Predicting Retirement Savings Using Survey Measures of Exponential-Growth Bias and Present Bias By Gopi Shah Goda; Matthew Levy; Colleen Flaherty Manchester; Aaron Sojourner; Joshua Tasoff

  1. By: Alan Finkelstein Shapiro (Tufts University); Brendan Epstein (University of Massachusetts, Lowell)
    Abstract: The degree of bank competition and firms' and households' participation in the domestic banking system differs considerably in developing and emerging economies (EMEs) relative to advanced economies (AEs). We build a small-open-economy model with endogenous firm entry, monopolistic banks, household and firm heterogeneity in participation in the banking system, and labor search to analyze the labor market and business cycle consequences of financial participation and banking reforms in EMEs. Our key finding is that there is a pre-reform threshold level of firm participation in the banking system below which reform implementation leads to sharper unemployment and aggregate fluctuations. Thus, for initially low (high) levels of firm and household financial participation, joint financial inclusion and bank competition reforms have adverse (beneficial) volatility effects. Our findings suggest that banking reform can reduce labor market and aggregate volatility by fostering household financial participation and bank competition in tandem, but only after a certain threshold of firm participation in the banking system is achieved.
    Date: 2018
  2. By: Gopi Shah Goda (Stanford University); Matthew Levy (London School of Economics); Colleen Flaherty Manchester (University of Minnesota, Carlson School of Management); Aaron Sojourner (University of Minnesota); Joshua Tasoff (Claremont Graduate University)
    Abstract: In a nationally-representative sample, we predict retirement savings using survey- based elicitations of exponential-growth bias (EGB) and present bias (PB). We find that EGB, the tendency to neglect compounding, and PB, the tendency to value the present over the future, are highly significant and economically meaningful predictors of retirement savings. These relationships hold controlling for cognitive ability, financial literacy, and a rich set of demographic controls. We address measurement error as a potential confound and explore mechanisms through which these biases may operate. Back of the envelope calculations suggest that eliminating EGB and PB would increase retirement savings by approximately 12 percent.
    Keywords: household finance, retirement savings, exponential-growth bias, present bias, financial literacy, survey-based elicitations, quasi-hyperbolic discounting
    JEL: D19 D91 C83 C10
    Date: 2018–08

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