| dc.description.abstract | The scientific literature reveals that a significant portion of the population lacks knowledge regarding foundational financial concepts. As a result of this knowledge gap, many people end up making suboptimal personal finance decisions. A common example is the preference for regular savings accounts for long-term savings as opposed to saving through stock market investments. An easy and accessible option for stock market participation is index fund investing, which has historically yielded substantially higher returns than savings accounts. Despite this, a majority of the population still defers from stock market investments.
In this master’s thesis we want to examine if insufficient knowledge is limiting people from saving in index funds. To test this possibility, we have conducted a survey-experiment. After collecting descriptive data about the participants, the sample was randomly assigned to a treatment group or a control group, to enable causal inference. The treatment group received thorough and empirically correct information about index fund functioning and historical performance, whereas the control group received only the most basic information regarding savings accounts and index funds. As outcome variables we then compared knowledge, attitudes, and hypothetical choices between index funds versus traditional savings accounts.
Our primary results indicate that providing people with data-based information about index funds increases their knowledge about past returns, makes them more optimistic about future returns, makes them perceive index funds as less risky, increases their intent to place their own money in index funds rather than using a standard bank account, and also increases the likelihood of recommending index funds to others. These findings support limited knowledge as one potential factor that can explain why only a small proportion of the population chooses to place their personal savings in index funds. We found no support for a treatment effect on the perceived trustworthiness of the financial institutions.
In our exploratory analysis we sought to examine if there were any meaningful differences between business students and non-business students. These findings indicate that it is easier to affect business students’ perceptions of index funds in a positive direction with information and leading them toward index funds as their preferred savings method. For non-business students, the information intervention did not yield a statistically significant impact on their choice intentions, despite a significant impact on their knowledge and assumptions about past and future returns. Despite the positive and robust average effect of the information intervention, based on our primary hypotheses prior to collecting the data, the heterogeneity results from our follow-up analysis are more ambiguous. One interpretation is that having access to correct information at the moment of decision-making can make a positive difference, but still, that it is not the only factor affecting people’s personal finance decisions. Having a relevant educational background and pre-existing economic knowledge may be equally important as limiting factors, serving as potential boundary conditions that are necessary for the efficacy of straightforward informational interventions.
When people make personal finance choices, there are most likely a large number of different psychological factors involved. The current study has provided causal evidence for the effectiveness of one driver of such choices, namely, to have easy and immediate access to correct information about index funds, based on a relatively large sample of Norwegian students. However, the current study was not able to identify a statistically significant information effect on choice intentions among students who lack pre-existing economic knowledge and possibly a set of related attitudes (i.e., non-business students). Therefore, it remains a question for future research to examine whether other types of interventions might be needed to help the majority of the student population to seriously consider index funds for their long-term personal savings, including those who do have pre-existing, in-depth economic knowledge from their educational background or professional experience. | en_US |
