Billions on the Sidewalk: Improving Savings by Reducing Investment Mistakes

No 18-2015, IHEID Working Papers from Economics Section, The Graduate Institute of International Studies

Abstract: This paper contributes the on-going debate on income inequality in advanced economies with a proposal aimed at reducing costly investment mistakes that are prevalent among middle-class households. The paper starts by describing how households should invest, compares it with what we know about how households do invest, and highlights discrepancies between the two (investment mistakes). After evaluating the costs of investment mistakes, the paper suggests that they could be reduced by accommodating cognitive biases through a simple process of ?nancial education and appropriate default options. The policy described in this paper is immediately actionable at basically no cost and can have a large e¤ect on the welfare of middle-class households in advanced economies.

Keywords: Household Finance; Inequality; Growth (search for similar items in EconPapers)
JEL-codes: D14 D18 F36 G18 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2015-09-23
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:gii:giihei:heidwp18-2015

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