Does product familiarity matter for participation? : [Version 23 July 2014]

  • Regulation of investor access to financial products is often based on product familiarity indicated by previous use. The underlying premise that lack of familiarity with a product class causes unwarranted participation is difficult to test. This paper uses household-level data from the ‘experiment’ of German reunification that (exogenously) offered to East Germans access to capitalist products (exogenously) unfamiliar to them. We compare the evolution of post-unification participation of former East and West Germans in financial products, controlling for relevant household characteristics. We vary familiarity differentials by considering (i) both unfamiliar ‘capitalist’ products (stocks, bonds, and consumer credit) and ones available in the East (savings accounts and life insurance); and (ii) cohorts with different exposure to capitalism. We find that East Germans participated immediately in unfamiliar risky securities, at rates comparable to West Germans of similar characteristics. They phased out disproportionate participation in previously familiar assets as familiarity with capitalist products grew. They were more likely to use consumer debt, partly to catch up with richer new peers. We find no signs of abrupt participation drops that could suggest mistakes or regret related to lack of familiarity.

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Author:Nicola Fuchs-SchündelnORCiDGND, Michael Haliassos
Parent Title (English):SAFE working paper series ; No. 63
Series (Serial Number):SAFE working paper (63)
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/08/12
Tag:German reunification; consumer credit; counterfactual analysis; familiarity; financial literacy; household debt; household finance; social interactions; stockholding
Issue:rev. vers. 23 July 2014
Page Number:66
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht