Discussion Paper Details

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Title: Does Product Familiarity Matter for Participation?

Author(s): Nicola Fuchs-Schündeln and Michael Haliassos

Publication Date: May 2015

Keyword(s): consumer credit, familiarity, financial literacy, household debt, household finance, investor protection, regulation and stockholding

Programme Area(s): Financial Economics

Abstract: Household access to financial products is often conditioned on previous use. However, banning access when learning is possible may be discriminatory or counter-productive. The ?experiment? of German reunification (exogenously) offered to East Germans unconditional access to (exogenously) unfamiliar capitalist products. Controlling for characteristics, East Germans participated immediately, were as likely to use unfamiliar risky securities as West Germans, and more likely to use consumer debt, without signs of regret. Our results suggest that mistakes of unfamiliar households can be prevented by a knowledgeable and well-incentivized financial sector and by interaction with familiar peers. This implies that regulation should refocus on the financial sector rather than on prohibiting individuals to gain familiarity with financial products.

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Bibliographic Reference

Fuchs-Schündeln, N and Haliassos, M. 2015. 'Does Product Familiarity Matter for Participation?'. London, Centre for Economic Policy Research.