nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2021‒01‒11
three papers chosen by

  1. Who lacks pension knowledge, why and does it matter? By Elinder, Mikael; Hagen, Johannes; Nordin, Mattias; Säve-Söderbergh, Jenny
  2. The potential impact of financial portability measures on mortgage refinancing: Evidence from Chile By Carlos Madeira
  3. The Expert and The Charlatan: an Experimental Study in Economic Advice By Aristotelis Boukouras; Theodore Alysandratos; Sotiris Georganas; Zacharias Maniadis

  1. By: Elinder, Mikael (Department of Economics at Uppsala University); Hagen, Johannes (IFAU - Institute for Evaluation of Labour Market and Education Policy); Nordin, Mattias (Uppsala University, Department of Statistics); Säve-Söderbergh, Jenny (The Swedish Social Insurance Inspectorate)
    Abstract: Recent pension reforms have shifted a larger responsibility towards savers. Individuals therefore need better knowledge of the rules and incentives embedded in the pension system to adequately save and prepare for retirement. In this paper, we use a novel Swedish survey matched with high-quality administrative data to show that many lack, and feel that they lack, such pension-specific knowledge. We also show that the most economically vulnerable groups know the least. Linking pension knowledge to behavior, we find that knowing less is associated with lower preparedness for retirement, even after controlling for financial literacy and subjective knowledge. Moreover, a large majority state the complexity of the pension system, or that they have planned to learn more about pensions but that it just hasn’t happened, as reasons for why they do not have sufficient knowledge. That the complexity of the pension system and individuals’ proclivity to procrastinate are plausible causal factors for low pension knowledge is supported by analyses showing that individuals with low math skills and procrastination tendencies have lower pension knowledge.
    Keywords: bounded rationality; financial literacy; saving; pension system
    JEL: D80 D83 H55
    Date: 2020–12–15
  2. By: Carlos Madeira
    Abstract: This study analyses the potential impact of a recent Financial Portability Law in Chile, which substantially reduces the monetary and time costs of mortgage modification. I show that mortgage refinancing is positively associated with financial education, liquidity needs and the timing for optimal refinancing. A counterfactual exercise shows that the new legislation can substantially increase refinancing rates and bring significant welfare gains, especially if it lowers the cognitive costs of the process. Welfare gains are larger for owners of second properties and top valued homes. Finally, bank switching decisions for consumer loans are found to be unaffected by mortgage refinancing.
    Date: 2020–12
  3. By: Aristotelis Boukouras; Theodore Alysandratos; Sotiris Georganas; Zacharias Maniadis
    Abstract: How do people choose what economic advice to heed? We develop a set of validated multiple-choice questions on economic policy problems, to examine empirically the persuasiveness of expert versus populist advice. We define populism as advice that conforms to commonly held beliefs, even when wrong. Two (computerised) advisers suggest answers to each question, and experimental participants are incentivised to choose the most accurate adviser. Do participants choose the high-accuracy adviser (`the Expert'), or the low-accuracy one (`the Charlatan'), whose answers are designed to be similar to the modal participant's priors? Our participants overwhelmingly choose the Charlatan, and this is only slowly and partially reversed with sequential feedback on the correct answer. We develop Bayesian models to determine optimal choice benchmarks, but find that behaviour is best explained by a naive choice model akin to reinforcement learning with high inertia
    Keywords: Democracy, Economic Literacy, Expert Advice, Populism
    JEL: C91 A11
    Date: 2020–07

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