We use a dataset of individual investors containing test-based measures of financial literacy and administrative records on their assets holding and trades before and during the financial crisis of September 2008. We design three tests of the benefits of financial literacy during the Global Financial Crisis, by comparing the decisions actually taken by individuals with a dominated alternative, i.e., one giving lower utility according to simple normative models of financial decision-making. We find that high-literacy investors are better at timing the market. High-literacy investors are also more likely to trade according to the prescriptions of normative models and to detect intermediaries’ potential conflicts of interest. However, though statistically significant, these effects are economically small.

The paper documents lack of awareness of financial assets in the 1995 and 1998 Bank of Italy Surveys of Household Income and Wealth. It then explores the determinants of awareness, and finds that the probability that survey respondents are aware of stocks, mutual funds and investment accounts is positively correlated with education, household resources, long-term bank relations and proxies for social interaction. Lack of financial awareness has important implications for understanding the stockholding puzzle and for estimating stock market participation costs.

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Economic theory suggests that uninsurable income risk and the expectation of future borrowing constraints can reduce the share of risky assets in a household's portfolio. If the utility function exhibits decreasing absolute risk aversion and decreasing prudence, an individual will reduce his exposure to rate of return risks when confronted with other independent risks. If there are transaction costs, the expectation of future borrowing constraints should induce individuals to keep a lower proportion of their wealth in the form of illiquid and risky assets. We find support for these propositions in a cross-section of Italian households

We obtain a model-driven measure of gender norms on intra-household financial decision making by leveraging dramatic variation across Italian cohorts and regions in the gender of the household head. We use these estimates to identify the effects of gender parity on household financial decisions. More egalitarian norms increase household participation in financial markets, equity holdings, asset diversification, and returns on investments . This evidence suggests that gender roles can have large economic costs . Consistent with this view, we show that patriarchal norms began receding in the early 1990s, when a pension reform made it too costly to comply with traditional roles.

We document that individuals who grow up in high firm density areas are more likely to become entrepreneurs, given firm density in their current location, and to run businesses in the sector with the highest density when young. Firm density at an entrepreneur’s young age drives current firm profitability and is more important than current density for business performance. Results hold in a sample of movers, which allows addressing endogeneity concerns. These results are consistent with entrepreneurial skills being partly learnable through social contacts. Accordingly, entrepreneurs who grow up in high firm density areas adopt better managerial practices.

[Using matched borrower-lender data, we document strong nonprice supplier effects in mortgage contract choice. For given relative price of adjustable and fixed rate mortgages, households borrowing from banks hit by shocks to the cost of long term funding, or to the deposits base or to access to securitization are more likely to choose adjustable rate mortgages. Supply factors have larger effects on less-sophisticated households and at times of price inaction. A model in which banks affect borrowers’choices through prices and distorted advice predicts these findings. We contrast the distorted advice interpretation of the evidence against the potential alternative nonprice channels.]

Assessing the importance of uninsurable wage risk for individual financial choices faces two challenges. First, the identification of the marginal effect requires a measure of at least one component of risk that cannot be diversified or avoided. Moreover, measures of uninsurable wage risk must vary over time to eliminate unobserved heterogeneity. Second, evaluating the economic significance of risk requires knowledge of the size of all the wage risk actually faced. Existing estimates are problematic because measures of wage risk fail to satisfy the "non-avoidability" requirement. This creates a downward bias which is at the root of the small estimated effect of wage risk on portfolio choices. To tackle this problem we match panel data of workers and firms and use the variability in the profitability of the firm that is passed over to workers to obtain a measure of uninsurable risk. Using this measure to instrument total variability in individual earnings, we find that the marginal effect of uninsurable wage risk is much larger than estimates that ignore endogeneity. We bound the economic impact of risk and find that its overall effect is contained, not because its marginal effect is small but because its size is small. And the size of uninsurable wage risk is small because firms provide substantial wage insurance.

We characterize infrequent durables stock adjustment by consumers who also derive utility from non-durable consumption flows in the presence of idiosyncratic income uncertainty. The data we analyse include subjective future income uncertainty measures, which we use as instruments in the estimation of relevant parameters of heterogeneous consumers' dynamic adjustment problems. The data feature two conceptually distinct sources of variation: cross-sectional heterogeneity of the sampled households' dynamic problems, and history-dependent heterogeneity in their situation during the observation period. We note that the latter should affect the likelihood but not the size of stock adjustment decisions, and find broad support for theoretical predictions in formal selection-controlled regressions based on this insight.