Financial literacy and the timing of tax-preferred savings account withdrawals

Tax deductions on contributions to registered savings vehicles are a common policy tool used by governments in many industrialized countries to encourage people to save for retirement. However, these plans do not typically lock in funds, which means savers may also withdraw before retirement when their marginal tax rates are still high and forgo the tax benefit. In this paper, we investigate the extent to which pre-retirement savings withdrawals respond to changes in the net-of-tax benefit of withdrawing and whether such behavior depends on the saver’s financial literacy. To that end, we link respondents of a nationally representative financial capability survey from Canada to over 15 years of administrative tax data. Our results show that the correlation between savings withdrawals and the effective marginal tax rate is negative for those with higher financial literacy, but much weaker and sometimes statistically insignificant for those with lower financial literacy. The findings suggest that financial literacy is an important determinant of the extent to which tax-deductible savings plans are used efficiently.     

Asset allocation and age effects in retirement savings choices

We examine the asset allocation decisions of members of three large Australian retirement savings funds. Superannuation Guarantee legislation in 1992 made Australian employees compulsory investors by requiring employers to contribute a fixed proportion of earnings to a superannuation fund on behalf of employees. A majority of these employees can choose an investment strategy for these contributions. We examine how actual investment strategy and asset allocation choices of members change with age in view of the conventional wisdom that individuals allocate less to risky assets as they age and investments theory which provides conflicting advice on the issue.     

Financial well-being amongst elderly Australians: the role of consumption patterns and financial literacy

Consumption behaviour and financial literacy are primary factors in determining the financial well-being of retirees. This paper uses an existing financial literacy index to examine how financial literacy directly, and via an interaction with consumption patterns, affects elderly Australians’ financial well-being. We find that most elderly Australians hold an optimistic attitude towards their financial situation, and those who are relatively older, more educated, healthier and outright homeowners are more likely to report higher levels of financial well-being. Financial literacy significantly improves financial well-being. It also helps strengthen the positive effects of meeting more of non-essential consumption needs on financial well-being.     

Financial Regulations,Financial Literacy,and Financial Inclusion: Insights from Kenya

This paper examines the relationship between financial regulation and financial inclusion in Kenya. Employing Probit regression on cross-sectional household level survey data and fixed effect regression on banks panel data, we find that: (i) agency banking regulations and financial literacy could improve formal financial access, and (ii) know-your-customers rules and capital and liquidity macro-prudential regulations could harm financial inclusion. Results are robust to alternative specifications. Given our findings, Kenya should boost financial literacy efforts, relax customer identification requirements in specific instances where they may jeopardize financial inclusion efforts, and stabilize macroeconomic environment to mitigate unintended adverse effects of macro-prudential regulations.     

Financial literacy and the demand for financial advice

The low level of financial literacy across households suggests that they are at risk of making suboptimal financial decisions. In this paper, we analyze the effect of investors’ financial literacy on their decision to demand professional, non-independent advice. We find that non-independent advisors are not sufficient to alleviate the problem of low financial literacy. The investors with a low level of financial literacy are less likely to consult an advisor, but they delegate their portfolio choice more often or do not invest in risky assets at all. We explain this evidence with a highly stylized model of strategic interaction between investors and better informed advisors with conflicts of interests. The advisors provide more information to knowledgeable investors, who anticipating this are more likely to consult them.     

Support for pension reforms: What is the role of financial literacy and pension knowledge?

Despite the relevance of the issue of pension system sustainability in most advanced economies, the factors associated with the opposition to pension reforms are still under-studied. In this paper, we investigate the correlation between financial, pension and institutional knowledge and support for pension reforms. Using an ad hoc module of the SHARE data for Italy, we find that financially literate and pension knowledgeable individuals are more willing to accept pension reforms. In particular, individuals with a basic level of pension knowledge recognize that population ageing, low economic growth, and low contributions by the young make the public pension system hardly sustainable.     

高新技术产业园区创新活动内生性与效率 ——基于非平衡面板内生随机前沿模型的分析

基于非平衡面板内生随机前沿模型,通过2009-2019年54个高新技术产业园区的非平衡面板数据,分析了高新技术产业园区创新活动的内生性与效率的关系.研究发现:科技经费和从业人员存在内生性,市场结构、科技经费和从业人员对创新效率有显著的正面影响;面板内生随机前沿模型可以显著地区别于外生随机前沿模型的创新效率估计.     

Financial Innovation,Basel Accord III,and Bank Value

I examine how financial innovation and Basel III capital requirements in Taiwan respond differently to banking crises and market competition. My panel data set comprises data from thirty-four banks for 2000-2012. I find a significant negative relationship between derivatives and the value of a bank and significant positive relationships among the capital adequacy ratio, bank-specific variables, and the value of a bank. Larger bank size and operational diversification tend to be positively associated with a bank's value, the holding of a relatively high amount of capital requirements, and nonperforming loans that are large. The latter result may simply reflect the scale of economy and improvement of efficiency in terms of financial innovation in the banking sector.     

Portfolio management and retirement: what is the best arrangement for a family?

In comparing an immediate life annuity with a payout-equivalent investment fund payout plan (self-annuitization), research to date has focused mainly on shortfall probabilities of self-annuitization. As an exception, Schmeiser and Post (2005) propose a family strategy where the chances of self-annuitization (i.e., bequests) are taken into consideration as well. In such a family strategy, potential heirs must bear shortfall risks, but in return have a chance of receiving a bequest. This paper analyzes under which conditions heirs will be willing to agree to a family strategy. The idea of a family strategy is integrated into a realistically calibrated intertemporal expected utility framework, taking into account risks arising from stochastic life span, asset returns, and nontradable labor income. A family strategy is shown to be accepted for many parameter combinations, especially in families with low marginal tax rates, if the heirs are wealthy, or in a case where the retiree has an average population life expectancy. We also work out how family self-annuitization decisions interact with asset allocation, saving decisions, and labor income risk. Under realistic conditions our results support two explanations for the empirically observable low demand for annuities (the so-called annuity puzzle), namely intra-family risk sharing and high cost of market-annuitization.     

Financial derivatives and bank risk: evidence from eighteen developed markets

We examine the relationship between equity risk and the use of financial derivatives with a sample of 555 banks from eighteen developed markets from 2006 to 2015. Our main findings suggest that banks’ use of financial derivatives increased their risk. This increase in risk can be driven by banks’ use of derivatives for speculative purposes, by suboptimal hedging to obtain hedge accounting status, or from accounting mismatches that generate volatility in earnings. We also show that this relationship is nonlinear. Too-Big-To-Fail banks and those that employ a traditional retail banking business model are subject to lower idiosyncratic risk. We address endogeneity concerns using instrumental variables capturing the use of derivatives with portfolio ranking. Overall, our study contributes to understanding the impact of derivatives use on bank risk and the risk consequences of a bank’s business model choice.     

Financial literacy,information flows,and caste affiliation: Empirical evidence from India

This paper empirically investigates the relevance of social interaction and caste affiliation for individual awareness of financial instruments and investment behavior of households in India. The results of our empirical analysis, which is based on a large scale survey on saving patterns of Indians, suggest a positive relationship between financial literacy and social interaction. However, especially backward caste people living in regions with a large fraction of backward castes have a lower probability of being aware of various financial instruments. In contrast, we find only weak empirical evidence for a direct effect of caste affiliation and social interaction on investment behavior.     

Economic System and Financial Literacy: Evidence from North Korean Refugees

We compare the financial literacy of two groups of Koreans living in South Korea, namely, native-born South Koreans and North Korean refugees, who were born and raised in contrasting economic systems. Examining the financial literacy of North Korean refugees and its changes over time after their settlement in a capitalistic society underscores the importance of institutional environments in developing financial literacy. We find that North Korean refugees, with very limited access to financial markets in their home country, are significantly less financially literate than native-born South Koreans. The gap is significant even after controlling for cognitive ability, which is also starkly different between the two groups. The financial literacy of the refugees increases over time during their settlement in South Korea, but the magnitude of such improvement is insubstantial. Our findings suggest that financial literacy is developed at the early life stages and cannot be easily modified at the later stages.     

Financial constraints and asset pricing: comprehensive evidence from London Stock Exchange

This study provides comprehensive evidence on the pricing of financial constraints (FC) risk on London Stock Exchange during the period 1988–2013. Utilizing a large number of proxies for FC, we find that investors are not compensated with higher premia for holding shares of financially constrained firms. To the contrary, in most of the cases, the most constrained firms significantly underperform, both statistically and economically, the least constrained ones. Focussing on the Whited–Wu index to construct a zero-cost FC factor that goes long the most constrained firms and sells short the least constrained ones, we find that this factor carries a significantly negative premium and it is priced in the cross-section over and above the commonly used risk factors.     

Crowdfunding: The collaborative economy for channelling institutional and household savings

The financial disintermediation mechanism known as “loan-based-crowdfunding” has recently come under regulation in several countries. This competitive investment and finance vehicle is already well established in the US and British markets.By compiling empirical data from a reference crowdfunding platform, this article compares loan-based crowdfunding with traditional investment vehicles such as investment funds, equities or pension funds.The conclusion of the study is that saving through crowdfunding allows the optimization of a portfolio comprising both institutional and retail investors.     

Economic Globalization and Financial Development in East Asia: A Panel Cointegration and Causality Analysis

This study examines the role of economic globalization in financial development in eight East Asian economies. The heterogeneous panel cointegration test reveals that cointegration is present among economic globalization, institutions, financial development, real gross domestic product per capita, and financial reforms. The Granger causality test results indicate that economic globalization has a significant causal influence on institutional quality, and institutional reforms have in turn facilitated and supported financial development, in particular of the banking sector in East Asia. Economic globalization is also found to have a favorable causal impact on stock market development without going through the institutional quality channel.     

Intra-Provincial Financial Disparity,Economic Disparity,and Regional Development in China: Evidence from Prefecture-Level City Data

The uneven spatial distribution of economic and financial activities in China has long been a concern of both researchers and policy makers. While most previous research focuses on China’s regional disparities measured using provincial data, this article investigates intra-provincial disparities which reflect the dispersion among cities within a given province. Using data on 282 prefecture-level cities in 25 provinces from 2003 to 2012, the relationship between economic disparity and financial disparity is investigated, after which the effects of the intra-provincial disparities on provincial economic growth are examined. It is found that intra-provincial financial disparity and economic disparity are positively correlated. The results also show that intra-provincial economic disparity has no effect on provincial economic growth. The intra-provincial financial disparity, however, has a negative effect on the local economic growth rate. Therefore, developing financial inclusion and narrowing financial disparity are important measures to maintain sustainable and inclusive economic growth.     

Financial openness and profitability premium: Causal evidence from the Shanghai-Hong Kong Stock Connect

This study explores the impact of capital market openness on the profitability premium by using the Shanghai-Hong Kong Stock Connect (SHKSC) programme as an exogenous shock. The empirical results show that (1) we can basically rule out the mispricing mechanism driving the significant profitability premium in China; (2) following SHKSC, the expected stock returns increase more across less profitable firms, and the less profitable firms have more increases in illiquidity, capital structure and information disclosure quality; and (3) the results are still robust after using propensity score matching analysis, deleting the highly volatile periods and conducting a firm-level test with the triple-differencing design.     

自助贷款申请与金融普惠：新泰案例

以追求效益和效率为导向的正规金融机构在发展普惠金融上一直踌躇不前。山东省新泰市农村信用社为摆脱原有靠业务员、代办员的人际关系开拓小微信贷市场的路径依赖,解决市场萎缩问题,自主研发并应用自助贷款申请终端,向农村广大弱势群体无障碍地敞开信贷大门,在确保自身高效运作的同时,提升了普惠金融的公平性、可得性。     

Sentiment and Financial Health Indicators for Value and Growth Stocks: The European Experience

In this study, we analyse the effect of macroeconomic surprises on inflation compensation data – the sum of inflation expectation, risk and liquidity premia – in the euro area. The empirical analysis is based on a daily data set, which covers a wide spectrum of maturities, stemming from inflation-indexed markets between 2 January 2004 and 31 December 2007. Our results suggest that when gauging short- and medium-term inflation compensations, market operators are sensitive to surprises related to real activity and prices. Notwithstanding, long-term inflation compensations remain generally unresponsive to macroeconomic surprises, attesting the European Central Bank's high credibility on the sample under consideration. The study also cross-checks the results from two different euro area inflation-indexed instruments (bonds and swaps) which differ slightly regarding medium-term horizon but give a similar picture regarding long-term horizons.