nep-fle New Economics Papers
on Financial Literacy and Education
Issue of 2023‒03‒06
three papers chosen by

  1. By Nedjla Lemerini; Abdellatif Habi
  3. Mortgage choice behavior of private households in a dynamic market environment – Empirical evidence for Switzerland By Gabrielle Wanzenried; Evanthia Kazagli; Yashka Nick Huggenberger

  1. By: Nedjla Lemerini (Maghnia University Center); Abdellatif Habi (Université Aboubekr Belkaid - University of Belkaïd Abou Bekr [Tlemcen])
    Abstract: The study aims to identify the reality of financial inclusion in Algeria and the Arab world by examining the concept of financial inclusion and its importance for economic development, and to address its indicators and the most important obstacles to the mainstreaming of financial services in the Arab world. The study concluded that the Arab world continues to suffer from low levels of financial inclusion compared to the countries of the world, facing serval challenges, which require the need to adopt an effective strategy to support and strengthen financial inclusion. As for Algeria, the ownership of the accounts at formal financial institutions have improved to an acceptable level, but borrowing from financial institutions is still very low.
    Keywords: Financial inclusion, Financial education, The Arab world, Algeria
    Date: 2022
  2. By: Vedev A.L (The Russian Presidential Academy Of National Economy And Public Administration); Tuzov K.A. (The Russian Presidential Academy Of National Economy And Public Administration); Kovaleva M.A. (The Russian Presidential Academy Of National Economy And Public Administration); Eremkin V.A. (The Russian Presidential Academy Of National Economy And Public Administration)
    Abstract: The relevance of this study is related to the fact that every national financial system in the world has some degree of financially excluded population, and only the proportion of such population varies between countries or regions of a country. The importance of identifying the financially excluded population in Russia and its regions and developing a policy to reduce its proportion is an urgent task that will help develop the financial sector and address the most important social tasks outlined in presidential decrees. The purpose of the study is to develop a working definition of financial exclusion, conduct a study of financial inclusion in Russian regions and, based on its results, develop measures to increase the availability of financial services in constituent entities of the Russian Federation. The subject of this research is the quality of financial system of the Russian Federation. The research method or methodology is based on a comprehensive analysis of the systems for designing indicators of the availability of financial services developed by such international organizations as the World Bank, the International Monetary Fund, the Global Partnership for Financial Inclusion, the Alliance for Financial Inclusion, and their application, while taking into account the specifics and approaches to definition and measurement of the availability of financial services at the national level. As a result of the work carried out, the international practice of increasing availability of financial services was reviewed, a methodological approach to studying the availability of financial services at the national and federal levels was developed and tested, and recommendations on increasing the availability of financial services in regions of Russia were given. The scientific novelty of the research lies in the collection and analysis of unique data on the state of financial services availability in the Russian regions. The recommendations produced as a result of the study indicate the need for further improvement of the financial system in terms of its focus on young people, people with a low level of education and socially unprotected segments of the population (need for new products and services), increasing the level of financial literacy of population and ensuring its well-being. The project was carried out as part of research work by the Laboratory for Structural Research of the RANEPA Institute of Applied Economic Research in 2021.
    Keywords: Financial inclusion, financial literacy, financial services for citizens, financial services for small businesses, financial sector, credit institutions, microfinance, credit cooperatives, Russian regions, opinion poll
  3. By: Gabrielle Wanzenried; Evanthia Kazagli; Yashka Nick Huggenberger
    Abstract: The purchase of a house or apartment and the related choice of a mortgage provider and product constitute a pivotal financial decision for many households. Accordingly, mortgage loans represent the largest proportion of household debts in most OECD countries and an important proportion of the retail banking business. Even though homeownership in Switzerland is with a homeownership rate of 40% remarkably low, the Swiss mortgage market is one of the largest in the world. This is related to the fact that homeowners can borrow up to 80% of the value of their property. Also, Swiss property prices are on average relatively high in comparison to other countries, and they have been dramatically increasing over the last years, rendering the acquisition of residential properties even more difficult. According to the Swiss National Bank, the outstanding volume of the domestic mortgage loans in Switzerland amounted to 1.07 billion Swiss francs by the end of 20201—accounting for almost 150% of the country’s nominal GDP—with 75% of bank credits concerning mortgage loans. In view of these circumstances, the mortgage market in Switzerland is very attractive and represents a major source of profit for mortgage loan providers. the otherwise traditionally conservative mortgage market in Switzerland is gradually manifesting certain dynamics. We observe the emergence of new players and products. Even though banks rank first as lenders for real estate purchases—accounting for 95% of the market—they are no longer the only option for Swiss households. Alternative providers, such as insurance companies, pension funds and crowdfunding platforms, have been steadily gaining ground in the market. New or revised market rules, along with further disruptions are anticipated in the housing and mortgage markets, given the technological advances, as well as the currently notably low interest rate environment—conditions that are expected to encourage further market penetration. The hitherto reserved role of mortgage brokers also seems to be changing, and an increasing number of households rely on corresponding service providers, whose offer clearly increases market transparency. Interestingly, we also observe differences in particular with respect to the role of mortgage brokers between the German- and French-speaking part of Switzerland. The language regions are related to existing cultural differences, which are also reflected in these financial choices. These facts lead to the conclusion that Switzerland is a very interesting market to study the mortgage choice behavior of private households.Main research questions, data and methodologyHow do households choose their mortgage supplier? How is this decision related to their creditworthiness and the value of their property? What sociodemographic characteristics of the households and geographic factors come into play? How does financial literacy and attitudes such as risk aversion affect mortgage decision-making? Which households get credit from their first-best mortgage provider, and which ones shop around? Given the nature of the credit allocation problem, that is characterized by asymmetric information, do we observe a selection process with potentially harmful consequences for the economy as a whole? Taking into consideration (i) the importance of mortgage decisions for the households, (ii) the high relevance of the mortgage business for retail banks in Switzerland, and (iii) the dynamic market environment with the new supply possibilities and the expected intensification of the competition among the mortgage providers, it is important to have a good understanding of the mortgage choice behavior of the borrowers. The purpose of our study is to understand the mortgage choice behavior of private households as function of the sociodemographic profile, their level of financial literacy and their degree of risk aversion. Our results will be based on a large-scale and unique online survey with 1’000 respondents from the German- and French-speaking part of Switzerland. We will use a regression framework to analyze the mortgage provider choice of private households in Switzerland. The expected results will provide new insights about the preferences of households with respect to the different mortgage providers as a function of household-specific, institutional and market-specific characteristics. The insights will not only be interesting from an academic point of view, but they are also addressed to practitioners who are able to better understand the changing market environment in order to optimize their mortgage offer. Finally, the regulatory authorities, which are keeping a close eye on the mortgage market, especially nowadays with the existing fears of inflation, will be able to draw interesting conclusions from the results.
    Keywords: Choice of mortgage providers; Dynamics of mortgage markets; Household Finance; Market Entry
    JEL: R3
    Date: 2022–01–01

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NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.