The Household Savings Paradox
By Tobias Meyll (University of Giessen – Department of Financial Services), Thomas Pauls (Goethe University Frankfurt) & Andreas Walter (University of Giessen – Department of Financial Service)
Using representative data from Germany, we reveal that more than 27.3% of the population not only restrains from participating in the stock market but also refuse to invest in contractual savings and retirement products. In fact, we find that these households rely on deposits only – an investment strategy usually related to negligible and recently to negative inflation-adjusted returns. Because these households forgo the equity risk-premium, on the one hand, as well as state subsidies associated with comparable safe products on old-age provision, on the other hand, we call this phenomenon the ‘household savings paradox’. We provide novel evidence that financial literacy and financial advice strongly decrease the likelihood to save paradoxically. Our results emphasize the important role of financial literacy and financial advice for sound financial decision-making in a rapidly changing and growing landscape of financial products.
Source: SSRN
