| By: |
Tabea Bucher-Koenen (MEA and University of Mannheim, 68131 Mannheim, Germany.);
Michael Ziegelmeyer (Economics and Research Department, Banque centrale du Luxembourg.) |
| 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. JEL Classification: D91, D14, G11. |
| Keywords: |
financial literacy, cognitive ability, financial crisis, life-cycle savings, saving behavior, portfolio choice |
| Date: |
2011–02 |
| URL: |
http://d.repec.org/n?u=RePEc:ecb:ecbwps:20111299&r=neu |