It surprises no one that the rich save more. But they save even more than what could be accounted for the lower propensity to consume that one would get from any reasonably parametrized model. What could account for the difference?
Annamaria Lusardi, Pierre-Carl Michaud and Olivia Mitchell that survey evidence tends to indicate that the rich are financially more literate, whereby the direction of the causality is not clear. They build a life-cycle model where financial literacy is endogenous. The mechanism generating higher savings is interesting. As the rich get retirement benefits that are relatively small compared to their permanent income, they need to have more precautionary savings. To manage these savings, they get more financially literate. This allows them to get higher returns and get even richer, while those that are content with their public retirement package see no need to save more and learn how to get better returns. One more reason to improve economic literacy in the public.
Showing posts with label economic literacy. Show all posts
Showing posts with label economic literacy. Show all posts
Inattention and bank overdrafts
It happens to everyone: you are not careful and despite having sufficient funds, your checking account is drying up at the wrong moment and you incur an overdraft fee from the bank. Oh well, you say, the penalty is somewhat stiff, but bad planning has consequences. But for those who have genuine liquidity problems or those that are really bad at planning, those fees can add up quickly and become substantial. Even on an aggregate level, it is important. Apparently, US banks earn $35 billion a year from overdraft fees, or a staggering $100 per capita.
Victor Stango and Jonathan Zinman study what can make that people avoid those fees. A lot has of course to do with education and self-discipline, thus reminders become an important tool. Indeed, they notice that people who were exposed to information about overdraft fees in surveys are less likely to incur such fees in the next month, by 12%, and this effect builds up over multiple exposures. This works best with those who need it the most: low education and low financial literacy. And as people avoid overdrafts by making fewer transactions, not increasing balances, it indicates they lower their expenses as a reaction to realizing that they may not afford that much spending. In other words, financial and economic literacy are important and should be favored.
Victor Stango and Jonathan Zinman study what can make that people avoid those fees. A lot has of course to do with education and self-discipline, thus reminders become an important tool. Indeed, they notice that people who were exposed to information about overdraft fees in surveys are less likely to incur such fees in the next month, by 12%, and this effect builds up over multiple exposures. This works best with those who need it the most: low education and low financial literacy. And as people avoid overdrafts by making fewer transactions, not increasing balances, it indicates they lower their expenses as a reaction to realizing that they may not afford that much spending. In other words, financial and economic literacy are important and should be favored.
Economic education and opinions about free markets
Public opinion about economic policy in France and the United States are very contrasted. In France, free markets are viewed very suspiciously and government intervention is required left and right. In the US, it is about the opposite, the government should stay out of any business and no tax can be justified. I find it very frustrating to talk to people (not economists) from both countries as they seem conditioned to believe steadfastly in their view. In the case of France, I was nice shocked to hear an elected politician claim that social security could easily be fixed by taking the money that "lies" in the banks.
Radu Vranceanu and Jerome Barthelemy try to relate beliefs in economic paradigms and economic education. Through a survey, they asked French Internet users about their knowledge of basic economic principles, their views on pro-market reforms, along with various demographic and education indicators. The survey was linked from a business school's website, so answers come from a population likely to be more interested than average in economic issue, and probably more likely to be open to pro-business reforms than the average French citizen. Still, it is clear that economic literacy is a god predictor of open-mindedness towards free markets. I bet it is just the opposite in the US.
Radu Vranceanu and Jerome Barthelemy try to relate beliefs in economic paradigms and economic education. Through a survey, they asked French Internet users about their knowledge of basic economic principles, their views on pro-market reforms, along with various demographic and education indicators. The survey was linked from a business school's website, so answers come from a population likely to be more interested than average in economic issue, and probably more likely to be open to pro-business reforms than the average French citizen. Still, it is clear that economic literacy is a god predictor of open-mindedness towards free markets. I bet it is just the opposite in the US.
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