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Culture and portfolios: trust, precautionary savings and home ownership

Johannes Fleck and Adrian Monninger

No 2457, Working Paper Series from European Central Bank

Abstract: This paper shows that individual beliefs on the effectiveness of formal and informal sources of risk sharing determine financial precautionary behavior. We present empirical evidence demonstrating that higher trust in public insurance systems reduces net liquid wealth while higher trust in communal insurance increases it. This dichotomy is consistent with theories on access to private risk sharing networks. Moreover, we find that both types of trust associate positively with the probability to take on financial risk for the purpose of becoming a homeowner and the related loan-to-value ratio. Our findings are robust across a wide range of econometric controls and specifications. JEL Classification: D14, D31, E71, G5

Keywords: household saving; portfolio liquidity; public and communal insurance (search for similar items in EconPapers)
Date: 2020-08
New Economics Papers: this item is included in nep-ias, nep-rmg and nep-soc
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20202457

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