Financial Literacy, Trust

and Financial Advice

Chiara Monticone∗

May 28, 2010

PRELIMINARY – PLEASE DO NOT QUOTE

Abstract

Using the 2007 Unicredit Customers’ Survey, this paper investi-gates the role of investors’ personalized trust and financial literacy oninvestment behavior. In particular, the paper aims to assess the impli-cations of financial literacy and trust on the use of financial advice forinvestment decisions, conditional on stock market participation. Bothelements positively affect the probability of holding risky assets. Inaddition, trust in financial advisors increases the propensity to followadvisors’ recommendations. Financial literacy is helpful in turning in-vestors away from non-professional sources of advice and reduces theprobability of relying on financial advice, by reducing the costs of in-vesting autonomously.Keywords: financial literacy, trust, stock market participation, finan-cial advice, delegationJEL codes: D12, D8, D91, G11

1 Introduction

The literature on household finances has devoted much attention to house-holds’ limited stock market participation (Haliassos and Bertaut, 1995). Inspite of the historical equity premium and of welfare considerations, largeshares of households in many countries do not own stocks, either directly orindirectly (Guiso et al., 2001). Among the main explanations put forwardin the literature, information costs and transaction costs have a prominentrole (Vissing-Jorgensen, 2004).

∗UniTo – CeRP/CCA. Address: CeRP/Collegio Carlo Alberto, via Real Collegio, 30- 10124 Moncalieri (TO), Italy. Telephone: 0039 0116705049. Fax: 0039 0116705042.E-mail: chiara.monticone@unito.it. I would like to thank Laura Marzorati at Unicreditfor making the UCS data available; Federica Palermo at the Ministry of Interior for herhelp with the referendum data; the Fondazione Rodolfo Debenedetti (FRDB) for makingthe ‘TFR Survey’ data available.

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A related aspect of investment behavior that received less attention hasto do with how stock market participation is performed. Do individuals de-cide by themselves how to invest? Do they seek advice, and from whom? Towhat extent they rely on the advice they receive? This is relevant becauseinvestment performance (or investment mistakes) may depend on who takesdecisions about portfolio management and this ultimately has an impact onhousehold wealth accumulation.

We argue that trust and financial literacy are important elements in thisdecision.

First, consumers may seek advice from sources that do not fully act intheir interest. For instance, in markets for technically complex products,such as financial ones, consumers often rely on the advice provided by rep-resentatives of the seller, who perform the conflicting tasks of prospectingfor customers and advising them (Inderst and Ottaviani, 2009). Even whenfinancial advisors are not direct representatives of the seller, they can befaced by conflicts or interest because ‘buy’ recommendations generate morecommissions than ‘sell’ recommendations, or because optimistic analystsmay have better relationships with companies in the future (Krausz andParoush, 2002). Conflicts of interests may arise also from market imperfec-tions (Bolton et al., 2007).

In all these situations, where investors may be afraid of being cheated bytheir advisors or broker, trust becomes important for the investment to takeplace. Gambetta (1998) defines trust as “the subjective probability withwhich an agent assesses that another agent or group of agents will performa particular action (p. 217)”. Recent research has shown that lack of trustin the financial system and financial intermediaries reduces the probabilityof investing in the stock market. Guiso et al. (2008) show that individualswho think that most people can be trusted are more likely to buy stocks, andconditional on participation to the stock market they hold more. Moreover,they show that personalized trust (i.e. trust one’s own bank or financial ad-visor) has a positive role in stockholding. Similarly, Pasini and Georgarakos(2009) report evidence of a positive effect of trust in financial institutionson stock market participation across countries. This is because when theinvestor is afraid of being cheated she reduces her expected return from afinancial investment, and if this is not high enough she will be better offstaying out of the stock market. Trust in financial institutions appears tomatter also for participation in 401(k) plans. Agnew et al. (2007) find that(lack of) trust is related to the decision to quit the plan when the was en-rollment automatic.

Second, in the decision about whether to rely on the advice of an inter-mediary (or of an advisor who could provide potentially deceptive advice),the investor’s financial knowledge and skills are likely to have a role. Indi-

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vidual investors’ financial literacy can be important in affecting the choiceof financial advisors (or information sources), as is suggested by the empir-ical evidence. In general, more financially literate individuals tend to select“better” advice, i.e. they prefer professionals to informal sources, such asrelatives and friends (Bernheim, 1998; Lusardi and Mitchell, 2006; van Rooijet al., 2007).

Apart from the effect on advisor’s selection, financial literacy should havea more direct influence. As long as more financially literate investors have abetter understanding of financial products and concepts, they should havean easier access to financial markets. van Rooij et al. (2007) show that fi-nancial literacy is related to higher stock market participation among Dutchhouseholds. A basic level of financial knowledge can be indeed interpreted asa way to reduce participation costs, because it reduces the cost of becominginformed about investment opportunities and it improves awareness of thebenefits, as well as of risks, of stock market participation. If financial literacyincreases stock market participation, then it should also increase the proba-bility of investing autonomously, especially if advice is potentially deceptive.

The theoretical model developed by Guiso et al. (2008) is used hereto study the separate roles of trust and financial literacy, and to providetestable implications. To explore this relation empirically we employ the2007 Unicredit Customers’ Survey (UCS). The survey is representative ofthe customers of one of the largest Italian banks and contains detailed infor-mation on socio-demographic characteristics, wealth holdings (also outsidethe bank), and portfolio composition. The 2007 survey also contains addi-tional information on financial literacy, trust and investment attitudes.

This paper contributes to the literature by investigating the role of trustand financial knowledge on the extent to which customers rely on the finan-cial advice from the bank (or from a financial advisor) for their portfoliomanagement. We concentrate on the bank relations because banks repre-sent the main source of financial information, both within this sample andin Italy in general. A survey of investors behavior in Italy shows that banksare the main source of financial information and advice, both with respectto professional sources of advice and overall, and that that trust towardbanks is quite high, in spite of their potential conflict of interest (Beltratti,2007). Concerning the supply side, it should be remarked that independentfinancial advice (fee-based) is almost non-existent in Italy.

We find that both higher trust in advisors and higher financial literacyincrease the probability of holding risky assets. As expected, trust in finan-cial advisors increases the propensity to follow advisors’ recommendations.At the same time financial literacy is helpful in turning investors away fromnon-professional sources of advice and reduces the probability of relying onfinancial advice, by reducing the costs of investing autonomously.

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The rest of the paper is organized as follows. Section 2 provides a simpletheoretical framework. Section 3 presents the dataset and the constructionof the main variables used in the analysis. Section 4 describes the distribu-tion of financial knowledge and personalized trust in the sample. Section 5analyzes the stock market participation and delegation decisions. Section 6concludes.

2 Theoretical framework

Relying on a financial advisors requires the investor to believe not only thatthe advisor is able to provide good advice, but most of all that he will chooseto do so. The extreme case of full reliance on advice borders delegation, evenif there is no formal delegating contract, and from the investor’s point theoutcome is not very different.

In order to study the separate roles of trust and financial literacy, andto derive testable implications, I will use – with the appropriate adaptations– the theoretical model developed in Guiso et al. (2008) in relation to trustand stock market participation.

The investor can choose among two assets: a riskless asset with certainreturn rf , and a risky one with uncertain return r̃. Given an initial wealthW , the investor can choose to invest all her wealth in the safe asset, or toinvest a share α of her wealth in the risky assets. Moreover, in participatingto the stock market, she can decide to invest autonomously or to rely on theadvice of a financial advisor. Clearly, there are different degree to which theinvestor can rely on financial advice, but for simplicity I will only considerthe two extremes of complete delegation and full autonomy. In addition tothe risk associated with the return of the risky asset, the investor is facedwith the risk that the advice may be deceptive or that the broker runs awaywith the money. The investor’s subjective probability of being cheated bythe advisor is defined as her mistrust p, corresponding to the probability –independent of that of the asset’s returns – that the value of the financialinvestment turns out to be zero. Moreover, I will assume that participationis associated with participation costs c.

In deciding whether to invest in the risky asset or not, the investorcompares the expected utility of participation and that of non-participation,and invests in the risky assets only if the former is larger, that is if

(1−pj)EU [(αr̃+(1−α)rf )(W−cj)]+pjU [(1−α)rf (W−cj)] ≥ U(Wrf ) (1)

where j = {advisor; self}.According to Propositions 1 in Guiso et al. (2008), there is a trust thresh-

old that triggers participation. There exist a level of mistrust p̄ such thatthe investor is indifferent between the two terms of the expression in (1);

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only investors with trust above the threshold (1 − p̄) hold the risky asset.Moreover, as in standard portfolio problems with participation costs, onlyinvestors with initial wealth above a threshold invest in the risky asset.

Moreover, Proposition 3 in Guiso et al. (2008) shows that the introduc-tion of participation costs in the problem increases the trust threshold thattriggers participation, that is the higher the participation costs, the higherthe minimum level of trust necessary to participate. The intuition behindthis proposition is that when the gain from participation decreases, a highertrust is required to participate.

Similarly, Proposition 4 shows that in the presence of mistrust the wealththreshold that triggers participation is increasing in p. The idea is that whenthe investor perceives a positive probability of being cheated, the effect ofthe fixed cost increases because she has to pay a cost up-front but will receivea positive return only with probability (1− p).

This framework can be extended to study the decision to rely on fi-nancial advice. The structure of the expected utility function in the caseof ‘self-investment’ and delegation can be considered to be similar: whenthe principal ‘delegates’ her financial decisions she may perceive a positiveprobability of being cheated by the agent, because he may be dishonest orsimply not up to his job; when the investor, instead, decides to invest byherself, she is implicitly making a judgement on her ability to perform thetask, which depends both on her true ability and on her self-confidence. Inaddition each alternative faces (partly) different participation costs.

The expected utility from delegation can be written as

(1− padv)EU [(αr̃ + (1− α)rf )(W − cadv)] + padvU [(1− α)rf (W − cadv)]

where padv is the mistrust towards the advisor and cadv are the costs theinvestor has to bear in case she decides to participate and to to follow finan-cial advice about her portfolio decision. These can include monetary costsb directly related to visiting an advisor, such as fees and commissions, andother costs a related to participation in the stock market, such as becom-ing aware of investment opportunities, determining whether trading is opti-mal, and setting up an account (for first-time investors) (Vissing-Jorgensen,2004). I will assume that the second category of costs is influenced by theinvestor’s financial literacy FL: cadv = f(a(FL), b).

Analogously, the expected utility from autonomous investment can bewritten as

(1− pself )EU [(αr̃ + (1− α)rf )(W − cself )] + pselfU [(1− α)rf (W − cself )]

where (1−pself ) is investor’s self-confidence about her ability to manageher portfolio and cself are the costs the investor has to bear if she partic-ipates without delegating her portfolio management. These costs include

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not only the same costs a related to participation in the stock market thatwere mentioned above, but also costs k related to “time/money spent under-standing basic investment principles as well as acquiring enough informationabout risks and returns to determine the household’s optimal mix betweenstocks and riskless assets” (Vissing-Jorgensen, 2004, p. 179). Both types ofcosts are clearly related to the investor’s financial literacy FL; moreover, thecost of learning is also related to the investor’s opportunity cost of time t.For any given level of financial literacy, busier investors are presumably lesswilling to spend time to manage their portfolios than investors with a lowercost of time. This is consistent with the findings of Hackethal et al. (2009)who study the investment behaviour of the customers of a large Germanbrokerage firm and investigate the probability that investors have their ac-counts run by an independent financial advisor (IFA). They show that IFAstend to be matched with wealthier and older investors, who presumably del-egate their investment decisions (also) because of a high opportunity costof time. Participation costs of investing autonomously can be expressed ascself = f(a(FL), k(FL, t)).

This simple theoretical framework helps to derive some theoretical im-plications to be tested empirically. The implications about stock marketparticipation are:

i. higher trust (either in one’s self or in a financial advisor) should inducea higher likelihood of participation, because it increases the expectedreturn from participation

ii. higher financial literacy, implying lower participation costs, should pre-dict a higher participation probability, since part of the participationcosts (a(FL)) are related to financial literacy, regardless of whetherdelegation occurs

The implications concerning ‘delegation’ vs. autonomous investment are:

iii. higher trust in advisors and lower confidence in one’s own abilityshould make ‘delegation’ more likely

iv. higher financial literacy should make ‘delegation’ less likely, becauseit reduces the cost of investing by one’s self

v. a higher opportunity cost of time should make ‘delegation’ more likely

vi. the effect of trust (on both participation and ‘delegation’) should belarger for less financially literate individuals, because reducing partic-ipation costs should reduce the trust threshold that triggers participa-tion

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The results of the empirical analysis are in favor of points i. to iv.However, cost of time does not seem to matter for the decision to rely onfinancial advice and there is no significantly different effect of trust on eitherparticipation or delegation across different financial literacy levels.

3 Data

The Unicredit Customers’ Survey is a representative sample of the customersof the banks of one of the largest Italian banks (Unicredit group). Eligibleaccount holders are 21-75 years of age and hold accounts of at least 10,000euro at the end of 2006.

The 2007 UCS survey samples 1,686 account holders. Even though sam-ple selection is based on individual Unicredit customers, the survey hasdetailed information on demographic characteristics of all components of ac-count holders’ households, including their labour market position, income,and household wealth (financial wealth, real assets, insurance policies andpensions).

Additionally, the account holder is asked about her relations with thebank, her attitudes towards investments, and her level of financial literacy.The financial literacy measure is constructed as in Guiso and Jappelli (2008)and measures the number of correct answers to eight questions on interest,inflation, understanding risk diversification and understanding the riskinessof various financial products. The average index corresponds to 4.7 correctquestions, and less than 1% of the sample can answer all of them correctly.Table 2 shows the distribution of correct answers.

The measure of personalized trust is based on the question “Overall,how much trust do you have in your bank advisor or financial promoterconcerning your financial investments?” with the answers ranging from 1(No trust at all) to 5 (I trust a lot). The average answer is 3.8, and thedistribution of personalized trust is in Table 3.

See Table 1 for the construction of the variables contained in the UCSand for data sources for the variables not contained in the UCS.

4 Determinants of Financial Literacy and Trust

This section investigates the distribution of trust and financial literacy inthe sample, and assesses whether there is a relation between the two.

As for trust, we want to know who trusts advisors, and whether trustis built over time (with the length of bank’s relationship). As for finan-cial literacy, it is important to verify whether its distribution across socio-economic groups is analogous to what is found in representative samples ofthe whole Italian population, or whether this sample displays some peculiar-ities. Moreover, it is interesting to see whether there is a relation between

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financial literacy and trust in financial advisors. In principle, trust and lit-eracy could be positively or negatively correlated. On the one hand, wewould expect a negative relation between trust and financial knowledge, inthe sense that very trusting individuals might feel less of a need to learnabout finance because they believe they can confidently delegate their fi-nancial decisions to experts. However, if individuals build their trust overtime, as they become more knowledgeable about the bank and finance ingeneral, we could expect trust and literacy to be positively correlated.

Results from Table 4 show that trust does not appear to be related tothe length of bank relations, even after controlling for the use of Unicreditas the main bank. Clearly, it is possible that trust itself affects the choice ofthe bank. In this case, trust would be a requisite for starting a relationshipwith a bank, rather than an outcome of this relation. The fact that there isno clear relation between trust and relationship duration is in favor of thesecond interpretation.

Personalized trust towards bank/advisors may be related to generalizedtrust and social capital. Column I reports the effect of generalized trustexpressed by UCS respondents. Generalized trust and specific trust arepositively correlated. In addition, Column II reports the effect of trust inbanks at the regional level, which is unsurprisingly positively related to trustin advisors in the UCS.

Columns III to VI report the effect of some the elements that should af-fect trust according to the social capital literature. Since previous researchhas shown the link between cross-country trust and economic growth, theGDP growth rate at the province level is added as a control in all the follow-ing specifications (Dincer and Uslaner, 2010; Knack and Keefer, 1997; Zakand Knack, 2001).

Since Guiso et al. (2004) use blood donations and participation to ref-erenda as measures of social capital, Column III includes the per capitanumber of blood donations in 1995 within a province and Column IV theturnout at provincial level at the 2006 referendum. Only referendum partic-ipation is positively and significantly related to trust in financial advisors,while blood donations are not significant.

Finally, Zak and Knack (2001) develop a theoretical model of trust andgrowth, providing the additional implication that societies with higher wageinequality should display lower levels of trust. Indeed, income inequality(and polarization in wider sense) are found to be negatively related to trustin Zak and Knack (2001)and Knack and Keefer (1997). In Column V, how-ever, income inequality at the regional level does not affect trust.

Moreover, Putnam (1993) stresses the role of associational activities as-sociations for trust and economic cooperation. However, the role of as-sociations not only on economic performance, but on trust itself, has beencontended. Knack and Keefer (1997) note that associations may break downinformation asymmetries and serve as occasions for interaction, but at the

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same time can reinforce polarizations within a society, as long as they areformed along (e.g.) ethnic, political, religious groups. In the present casethe regional participation rate to associations in 2006 does not significantlyaffect trust (not reported).

Table 5 shows the determinants of financial literacy.1 Column I of Ta-ble 5 confirms basic findings about the determinants of financial literacyas they have been found in the literature about Italy and other countries(Australia and New Zealand Banking Group, 2008; Lusardi and Mitchell,2007; Monticone, 2010; van Rooij et al., 2007). Females perform worse thanmales and the age profile is increasing up to some point and then declining.Financial knowledge is positively associated with wealth. In line with thisevidence, private banking customers show higher knowledge. Differentlyfrom previous evidence, respondents living in the south are not less skilledthan respondents in the rest of the country.

Column II shows that there is no significant relation between financialliteracy and trust. Even though the trust coefficient is negative, financialliteracy does not appear to have any statistically significant relation withtrust, suggesting that the argument that investors may not acquire knowl-edge because they trust bank officials/finanical advisors does not hold. Thismay be related to fact that UCS samples relatively rich investors, who maybe more knowledgeable and trusting than the average population.

Column III shows that financial literacy is strongly related with pastexperience with risky assets. This is in line with previous literature indi-cating experience as the most important source of learning about financialknowledge (Hilgert et al., 2003).

Finally, an indicator of time preference is included in Column IV. Con-sistently with the idea that acquiring financial literacy is a human capitalinvestment, Meier and Sprenger (2008) show that individuals who heavilydiscount the future are more likely to remain financially illiterate. Theirstudy reports the result from a field study eliciting time preferences andwillingness to participate in a free credit counseling program, and showsthat more patient respondents are more likely to participate in counseling.As expected, also in this study patience is positively related to financialknowledge, even though it turns insignificant when both patience and expe-rience are included in the same regression (Column V).

1Even though some right-hand-side variables are likely to be endogenous (e.g. wealth,experience), these regressions are just intended to show correlations and endogeneity willnot be corrected for.

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5 Financial Advice

Before analyzing the effects of financial literacy and trust on investors’ choiceabout how to invest, some descriptive evidence is presented about the useof various sources of advice. In particular, it is interesting to study whetherrespondents ask for information and advice in taking portfolio decisions,whom they address for advice, and what drives the choice of each source ofinformation/advice.

5.1 Sources of Financial Advice

First of all, Table 6 shows that many do not spend any time to becomeinformed about financial issues: as much as 39% of those who have riskyassets does not devote time to gather information about how to managetheir savings and investments. Considering only those who spend some timeto become informed (Table 7), banks are the sources of advice visited mostoften, followed by brokers. This confirms the finding about the overall Italianpopulation reported in Beltratti (2007).

Table 8 explores the determinants of the frequency of use of the varioussources. The estimates are performed using Heckman’s maximum likeli-hood estimator, in order to correct for the selection induced by spendingsome time to search information and holding risky assets. As expected,trust in financial advisors is related to a higher use of banks and financialadvisors as sources of information/advice. The level of financial literacy isnegatively related to the use of friends, relatives and colleagues for advice.This is consistent with the evidence found by Bernheim (1998); Lusardi andMitchell (2006); van Rooij et al. (2007). No relation is there between finan-cial knowledge and the use of banks/brokers and tv/newspapers/internet assource of advice. Self-assessed financial ability is positively associated withthe use of brokers, family/friends, and tv/newspapers/internet. Experiencein trading securities is not associated with the use of any source.

5.2 Reliance on Financial Advice

As trust and financial knowledge appear to have an important role in thedecisions to participate in the stock market and to seek advice, the rest of thesection will investigate the decisions to participate and to rely extensivelyon financial advice for portfolio decisions.

The choice between investing autonomously or delegating is reported inTable 9. About 12% of the respondents with risky assets decide completelyby themselves, 68% ask for their banks’s / advisors’ advice before formingtheir own decisions, while almost 20% rely mostly or completely on advisors’indications. In the following analysis, we will consider as “delegating” thosewho indicate “I mostly rely on bank/advisor for my investment decisions” or

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“I let bank/advisor decide everything” as the best description of how theyinvest their savings.

Since the question about the extent of reliance on financial advice be-haviour is asked only if the respondent reports having risky assets, the re-lation is estimated by probit regression controlling for the selection inducedby participation (Heckman probit). Given the way the data are constructed,risky assets include all financial products apart from the transaction account.

Table 10 presents the results (marginal effects) for the the determinantsof stock market participation (first stage of Heckman probit). Two vari-ables are are included only in the selection equation, in order to achieveidentification: a preference for liquidity2 and whether the household has amortgage. Stock market participation should be related with backgroundrisk, and having a mortgage represents a sizeable source of financial risk.As expected, both variables significantly reduce the probability of holdingrisky assets.

In general, the results of Table 10 confirm previous findings in the liter-ature. Higher education, higher risk tolerance and higher financial wealthholdings are positively related to the probability of stock market participa-tion. Living in southern regions is associated with a lower probability ofholding risky assets. A longer experience with financial assets is related toa higher probability of holding risky assets at the time of interview.

Columns II–V show that, as in van Rooij et al. (2007), financial literacyis positively associated to stock market participation. A unit change in thefinancial literacy index increases the probability of holding risky assets byabout 2%. As in Guiso et al. (2008), personalized trust predicts a higherprobability of holding risky assets. The same is true for self-assessed financialability, consistently with the predictions of the theoretical model.

In Columns IV and V, an additional explanatory factor is the lengthof relationship with the bank (longer relation is related to higher participa-tion), which is robust to the exclusion of respondents who have relationshipswith banks other than Unicredit (Column V).

Table 11 presents the results (marginal effects) for the the determinantsof ‘delegation’ (second stage of Heckman probit, where each column corre-sponds to those of Table 10).

The results of Column I can be roughly compared to those of (Hackethalet al., 2009, Table 2) about the determinants of having the account run bya financial advisor. The only common result is that female are more likelyto delegate. However, in the Italian sample, age and wealth turn out notto have any effect. Moreover, the hypothesis that busier investors are more

2The preference for liquidity is captured by a question asking “If you could decidetoday how to invest 100, how much of this you would invest in liquidity, i.e. in assets thatcan be sold easily and quickly, with no risk of losses”

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likely to delegate because they face a high opportunity cost does not findmuch support in these results: neither individual income, nor labor marketstatus (being self-employed) are significant determinants.

Other significant explanatory variables are years of education, with highereducation being related to a lower delegation probability, and risk prefer-ences, with risk averse individuals being more likely to delegate.

The effects of financial literacy, self-assessed financial ability and trustin advisors are consistent with the theoretical predictions. Financial liter-acy (Columns II to V) makes delegation less likely by reducing the cost ofinvesting autonomously. Confidence in experts and lack of confidence inone’s self make delegation more likely, by increasing the expected return ofthis option. Experience and length of bank relation have no impact on thedelegation choice.

These results point to the role of trust and financial literacy in shapinginvestor’s relations with financial advisors. Trusting individuals are not onlymore likely to participate, but they also have a higher probability of relyingon the bank advisors or their financial advisors for advice.

5.3 Combined Effect of Trust and Financial Literacy

The theoretical framework of section 2 indicated that the introduction (orthe increase) of participation costs increases the trust threshold that trig-gers participation/delegation, that is the higher the participation costs, thehigher the minimum level of trust required to participate. This suggeststhat the effect of trust should be higher for low financial literacy investors.

Indeed, Guiso et al. (2004) and Guiso et al. (2008) find that the effectof trust on financial development (use of checks, percent of portfolio non incash, etc.) and on stock market participation is higher for respondents witheducation below the median.

In this case, neither the interaction between trust and financial literacy,nor the one between trust and education, have a significant impact on theuse of financial advice or on stock market participation.

5.4 Trust Endogeneity

Trusting towards financial advisors is likely to be endogenous with respectto the choice of delegating, in the sense that an investor could increase hertrusts if she delegated in the past and was satisfied with the job, or if trustinfluences the choice of the bank/advisor.

Table 12 estimates the same equation as in Column IV of Table 11, in-strumenting trust in advisors with turnout at the 2006 referendum at theprovincial level (controlling for provincial GDP growth) and average trusttowards banks at the regional level. As Table 4 shows, referendum turnoutsignificantly affects trust and should not have any relation with financial

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delegation. However, the F test on excluded instruments reported at thebottom of the table is quite low, suggesting a weak instrument problem.The Hansen’s J test supports the null hypothesis of instruments validity.Unfortunately, once trust is instrumented its effect on delegation becomesinsignificant, probably because the instruments are weak. For most of theother covariates the sign and significance remain the same as without in-strumenting. Analogous results are obtained estimating the probability ofdelegation by probit and instrumenting trust by means of the control func-tion approach.

6 Concluding remarks

We use survey data from the 2007 Unicredit Customers’ Survey to investi-gate heterogeneity in investment behavior due to differences across investorsin personalized trust and financial literacy. This paper aims to assess theimplications of these two factors, the role of which has been examined sepa-rately by the existing literature (Guiso et al. (2008); van Rooij et al. (2007)),on stock market participation, and on delegation of financial decisions, con-ditional on stock market participation.

As expected, both financial literacy and trust positively affect the prob-ability of holding risky assets. As expected, personalized trust is stronglyrelated to the propensity to delegate financial decisions. Financial literacy,on the contrary, is negatively related with the probability of delegation,because it reduces the burden on investing autonomously.

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15

Table 1: Variable Description and Data Sources

Variable Description Source

Financial Liter-acy

The financial literacy measure is constructed as in Guiso and Jappelli(2008). One point is given if the respondent can answer correctly toeach of the following questions:

- Imagine an account yields 2% yearly (net of costs and taxes).With inflation at 2% per year, how much do you think youwill be able to buy after two years (without moving funds inthe account)? More than what I could buy today | Less | Thesame | Do not know;

- Imagine you know with certainty that in six months interestrates will rise. Do you think you should buy fixed rate bondstoday? Yes | No | Do not know

- What do you think having correctly diversified investmentsmeans? Having in one’s own portfolio both bonds and stocks| Do not invest for too long in the same financial product |Invest in as many assets as possible | Invest in several assetsat the same time , in order to limit exposure to risks linked tosingle assets | Do not invest in very risky products | Do notknow

- Which of these portfolios is better diversified? 70% T-bills,15% European equity fund, 15% in 2-3 Italian stocks | 70%T-bills, 30% European equity fund | 70% T-bills, 30% in 2-3Italian stocks | 70% T-bills, 30% in stocks of companies I knowwell | Do not know

Four other indicators are based on the question “How risky do youthink these products are?” The answers can be from 1 (Not risky atall) to 5 (Very risky) and ‘Do not know’ is always an option. Onepoint is given if the respondent can correctly state that

- Private bonds are at least as risky as current accounts

- Stocks at least are as risky as government bonds

- Stocks mutual funds are at least as risky as bonds mutualfunds

- Housing are at least as risky as current accounts

UCS

Self-assessed fi-nancial ability

It is based on the question: “For each of these ten assets I would likeyou to tell me how much you think you know it”, where the answercan be in the range 1 (I do not know it at all) to 5 (I know it verywell). The assets are: government bonds, repurchase agreements,private bonds, mutual funds, derivatives, unit-linked or index-linkedlife insurance, ETFs, managed portfolios, structured products.

UCS

Trust towardfinancial advi-sors

It is based on the question “Overall, how much trust do you havein your bank advisor or financial advisor concerning your financialinvestments?” with the answers ranging from 1 (No trust at all) to 5(I trust a lot).

UCS

Generalizedtrust

It is a dummy based on the World Values Survey question “Generallyspeaking, do you think that most people can be trusted or that youhave to be very careful in dealing with people?”. The dummy takesthe value of 1 if the respondent answers “I think think that mostpeople can be trusted”

UCS

Continues

16

Table 1: (continued)

Variable Description Source

Trust in banks This variable is based on the Fondazione Rodolfo Debenedetti’s ‘TFRSurvey’. This is an ad hoc survey of private sector employees con-ducted in 2007 to investigate the effects of a pension reform. Thesurvey asks “Do you trust banks? Fully | A lot | Little | Not at all”.The variable is the share of respondents answering ‘Fully’ within eachregion, weighted with the weights provided with the survey

FRDBTFR Sur-vey

GDP growth GDP growth rate in 2006 at provincial level EurostatBlood dona-tions

The blood donations variable is taken from the Guiso et al. (2004)dataset and it refers to the number of blood bags per million of in-habitants in the province collected by AVIS, the Italian Associationof Blood Donors, in 1995

Guiso et al.(2004)

Referendum Voter turnout at the province level for the 2006 constitutional refer-endum

Ministry ofInterior

Income in-equality

Income inequality is measured by the Gini index at regional level ofhousehold labor and pension income computed on the 2006 Bank ofItaly’s Survey of Households Income and Wealth data.

SHIW

Experience Three questions are used in measuring experience in assets trading.If the respondent has ever invested in either bonds, stocks or mutualfunds, then the UCS asks at which age the respondent first investedin each of bonds, stocks and mutual funds. Experience in each assetis computed as the difference between current age and age of firstinvestment. Overall experience is computed as the maximum of thesethree numbers. If the respondent has never invested in any of thethree assets, experience is set to zero

UCS

Patience It is based on the question: “Imagine you win 100,000 euro in a lottery.This amount of money will be given you in a year. However, if yougive up part of the money, you can receive the rest immediately. Toreceive the money immediately, would you be willing to receive 95,000euro?

• Yes ⇒ Would you accept to receive 90,000 euro?

– Yes ⇒ Would you accept to receive 80,000 euro? Yes |No

– No

• No ⇒ Would you accept to receive 97,000 euro?

– Yes

– No ⇒ Would you accept to receive 98,000 euro? Yes |No, I’d rather wait one year”

UCS

Preference forliquidity

It is captured by a question asking “If you could decide today howto invest 100, how much of this you would invest in liquidity, i.e. inassets that can be sold easily and quickly, with no risk of losses”

UCS

17

Table 2: Number of correct answers to financial literacy tests

Freq. Percent

0 17 1.011 45 2.672 69 4.093 186 11.034 365 21.655 498 29.546 354 21.007 143 8.488 9 0.53

Total 1,686 100Data: Unicredit 2007

Table 3: Trust in bank/financial advisor

Freq. Percent

Not at all 53 3.14Little 100 5.93Medium 313 18.56High 920 54.57Very high 300 17.79

Total 1,686 100Data: Unicredit 2007

18

Table 4: Dep Var: trust in financial advisors/bank officials (OLS)

I II III IV V VI

Female 0.171*** 0.166*** 0.168*** 0.167*** 0.169*** 0.165***(0.06) (0.06) (0.06) (0.06) (0.06) (0.06)

Age 0.001 0.001 -0.001 -0.002 -0.001 -0.003(0.02) (0.02) (0.02) (0.02) (0.02) (0.02)

Age squared 0.000 0.000 0.000 0.000 0.000 0.000(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Years school 0.005 0.005 0.007 0.007 0.007 0.006(0.01) (0.01) (0.01) (0.01) (0.01) (0.01)

Self-employed 0.034 0.036 0.033 0.028 0.033 0.032(0.06) (0.06) (0.06) (0.06) (0.06) (0.06)

Center -0.032 0.039 0.007 0.014 -0.033 0.056(0.07) (0.09) (0.06) (0.05) (0.06) (0.06)

South and Isles -0.127 -0.020 -0.078 0.201 -0.158** 0.216(0.08) (0.10) (0.10) (0.16) (0.07) (0.15)

Log tot ind income -0.040 -0.038 -0.033 -0.032 -0.034 -0.034(0.03) (0.03) (0.03) (0.03) (0.03) (0.03)

Log H FinW 0.031 0.031 0.029 0.029 0.031 0.028(0.03) (0.03) (0.03) (0.03) (0.03) (0.03)

H FinW refuse 0.257 0.268 0.244 0.243 0.263 0.243(0.32) (0.31) (0.32) (0.32) (0.32) (0.32)

Very risk averse -0.313*** -0.303*** -0.308*** -0.298*** -0.313*** -0.294***(0.09) (0.09) (0.09) (0.09) (0.09) (0.09)

Experience 0.004 0.003 0.003 0.003 0.003 0.003(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Financial literacy -0.012 -0.009 -0.012 -0.012 -0.012 -0.008(0.02) (0.02) (0.02) (0.02) (0.02) (0.02)

Years at UC: 1-5 -0.177 -0.181 -0.193 -0.210 -0.188 -0.208(0.15) (0.15) (0.15) (0.15) (0.15) (0.15)

Years at UC: 6-10 -0.253* -0.250* -0.278* -0.290** -0.272* -0.282**(0.14) (0.14) (0.14) (0.14) (0.14) (0.14)

Years at UC: 11-20 -0.261* -0.265* -0.288* -0.293* -0.277* -0.291*(0.15) (0.15) (0.15) (0.15) (0.15) (0.15)

Years at UC: More 20 -0.274* -0.268 -0.289* -0.297* -0.284* -0.283*(0.16) (0.16) (0.16) (0.16) (0.16) (0.16)

Unicredit only bank 0.352*** 0.376*** 0.364*** 0.373*** 0.361*** 0.380***(0.09) (0.09) (0.09) (0.09) (0.09) (0.09)

Unicredit main bank 0.323*** 0.339*** 0.330*** 0.341*** 0.329*** 0.347***(0.10) (0.11) (0.10) (0.10) (0.10) (0.11)

Generalized trust 0.148***(0.05)

Trust in banks 2.191** 1.690*(0.88) (0.88)

GDP growth 0.022 0.022 0.029** 0.022(0.02) (0.02) (0.01) (0.01)

Blood donations 2.248(1.81)

Referendum 2006 0.021*** 0.016**(0.01) (0.01)

Gini Income 0.442(0.89)

Contant 3.536*** 3.372*** 3.385*** 2.236*** 3.290*** 2.429***(0.52) (0.49) (0.51) (0.69) (0.62) (0.66)

N obs 1686 1686 1686 1686 1686 1686Adj.R-Squared 0.044 0.046 0.045 0.049 0.044 0.053

Data: Unicredit 2007. Standard errors reported in parentheses are robust to het-eroskedasticity and clustering on provinces. 19

Table 5: Dep Var: financial literacy (OLS)

I II III IV V

Female -0.289*** -0.285*** -0.200** -0.282*** -0.198**(0.09) (0.09) (0.09) (0.09) (0.09)

Age 0.064** 0.065** 0.025 0.063** 0.024(0.03) (0.03) (0.03) (0.03) (0.03)

Age squared -0.001** -0.001** -0.000 -0.001** -0.000(0.00) (0.00) (0.00) (0.00) (0.00)

Years school 0.153*** 0.153*** 0.121*** 0.152*** 0.120***(0.05) (0.05) (0.04) (0.05) (0.04)

Years school squared -0.004** -0.004** -0.003* -0.004** -0.003*(0.00) (0.00) (0.00) (0.00) (0.00)

Married -0.003 -0.005 -0.034 0.001 -0.032(0.11) (0.11) (0.11) (0.11) (0.11)

Divorced -0.191 -0.188 -0.135 -0.180 -0.130(0.16) (0.16) (0.16) (0.16) (0.16)

Widow(er) -0.106 -0.108 -0.057 -0.098 -0.054(0.17) (0.17) (0.16) (0.17) (0.16)

Number H components 0.075** 0.076** 0.081** 0.072* 0.080**(0.04) (0.04) (0.04) (0.04) (0.04)

Employee -0.036 -0.032 -0.029 -0.031 -0.026(0.17) (0.17) (0.16) (0.17) (0.16)

Self-employed -0.044 -0.040 -0.062 -0.049 -0.064(0.17) (0.17) (0.16) (0.17) (0.16)

Unemployed -1.215** -1.208* -1.024* -1.195* -1.016*(0.62) (0.62) (0.57) (0.62) (0.57)

Retired 0.018 0.024 -0.003 0.016 -0.004(0.17) (0.17) (0.16) (0.17) (0.16)

North-east 0.094 0.094 0.051 0.084 0.047(0.10) (0.10) (0.10) (0.10) (0.10)

Center -0.120 -0.120 -0.134 -0.119 -0.133(0.10) (0.10) (0.10) (0.10) (0.10)

South and Isles 0.043 0.040 0.114 0.040 0.112(0.10) (0.10) (0.10) (0.10) (0.10)

Log H FinW 0.119*** 0.119*** 0.077** 0.116*** 0.076**(0.04) (0.04) (0.04) (0.04) (0.04)

H FinW refuse 1.166*** 1.167*** 0.750* 1.130*** 0.738*(0.42) (0.42) (0.41) (0.42) (0.41)

Private banking 0.489*** 0.503*** 0.354*** 0.484*** 0.353***(0.13) (0.13) (0.12) (0.13) (0.12)

Log tot ind income 0.065 0.064 0.042 0.063 0.041(0.04) (0.04) (0.04) (0.04) (0.04)

Trust advisor -0.025(0.04)

Experience 0.061*** 0.060***(0.01) (0.01)

Experience squared -0.001*** -0.001***(0.00) (0.00)

Patience 0.965* 0.438(0.52) (0.52)

Constant -0.171 -0.084 1.482* -0.963 1.109(0.89) (0.91) (0.88) (0.99) (0.99)

N obs 1686 1686 1686 1686 1686Adj. R-Squared 0.078 0.077 0.130 0.079 0.130

Data: Unicredit 2007. Heteroscedasticity robust standard errors in parenthe-ses.

20

Table 6: How much time do you devote on average in a week to gatherinformation about how to manage your savings and your investments?

Unconditional Conditional onhaving risky assets

No time 28.29 39.592-3 h/month 20.11 28.131h/week 8.84 12.371-2h/week 5.63 7.882-4h/week 3.74 5.234-7h/week 1.96 2.747+h/week 2.91 4.07No risky assets 28.53

Total 100 100N 1,686 1,205Unicredit 2007.

Table 7: How much do you use each of these sources to have informationabout your financial investments? (N = 679)

Bank Financial Friends, Econ TV/radio Econ pagespromoter relatives, programs in non-econ

colleagues newspapers

Never 3.5 24.7 41.2 29.2 26.1Seldom 8.0 9.0 23.9 24.7 20.6

Sometimes 25.8 23.0 22.5 29.9 29.8Often 40.2 32.0 10.5 12.7 19.3

Very often 22.5 11.3 1.9 3.5 4.3

Econ inserts Econ Non-econ Econ Econin non-econ newspapers magazines magazines websitesnewspapers

Never 36.8 30.8 45.8 50.4 50.1Seldom 21.7 19.6 21.8 20.3 13.4

Sometimes 24.6 25.9 21.8 17.7 16.6Often 14.0 15.6 8.5 9.6 12.5

Very often 3.0 8.1 2.1 2.1 7.4

Total 100 100 100 100 100

Unicredit 2007. Conditional on spending at least some time to gather information abouthow to manage savings and investments.

21

Table 8: Frequency of use of sources of information / advice (Heckman)

Bank Financial Friends, Econ TV/radio Newspapers/ Econpromoter relatives, programs Magazines websites

colleagues (average)

Female 0.176 0.255 0.282* -0.099 -0.174* -0.329**(0.14) (0.19) (0.15) (0.14) (0.09) (0.14)

Age -0.038 -0.021 -0.043 -0.003 -0.002 -0.089*(0.04) (0.05) (0.05) (0.05) (0.03) (0.05)

Age squared 0.000 0.000 0.000 0.000 0.000 0.001(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Years school -0.036*** -0.005 -0.029 -0.036** 0.039*** 0.009(0.01) (0.02) (0.02) (0.01) (0.01) (0.02)

Employee -0.179 -0.737** -0.021 -0.130 0.203 0.274(0.23) (0.33) (0.26) (0.22) (0.18) (0.24)

Self-employed -0.064 -0.444 0.080 -0.013 0.127 0.278(0.23) (0.33) (0.27) (0.21) (0.17) (0.24)

Unemployed -0.665* -1.807*** -0.847* -1.045*** -0.351 -0.163(0.34) (0.59) (0.45) (0.34) (0.28) (0.33)

Retired -0.008 -0.567 -0.355 -0.177 -0.072 0.035(0.28) (0.36) (0.29) (0.25) (0.18) (0.24)

Log H FinW 0.068 0.013 -0.049 -0.190*** -0.070 0.058(0.08) (0.09) (0.11) (0.06) (0.06) (0.07)

H FinW refuse 1.010 0.137 -0.601 -2.050*** -0.945 0.617(0.93) (0.98) (1.19) (0.68) (0.63) (0.74)

Experience -0.008 0.013 0.018 0.006 -0.009 -0.005(0.02) (0.02) (0.03) (0.02) (0.01) (0.02)

Experience squared 0.000 -0.000 -0.000 -0.000 0.000 0.000(0.00) (0.00) (0.00) (0.00) (0.00) (0.00)

Very high trust 2.074*** 1.895*** -0.367 0.103 -0.182 0.297(0.30) (0.31) (0.83) (0.26) (0.30) (0.43)

High trust 1.800*** 1.615*** 0.200 0.085 -0.190 0.053(0.27) (0.27) (0.85) (0.25) (0.29) (0.42)

Medium trust 1.310*** 1.103*** -0.039 -0.077 -0.021 0.218(0.27) (0.29) (0.83) (0.26) (0.30) (0.43)

Little trust 0.801** 0.201 -0.250 -0.122 -0.371 0.888*(0.38) (0.32) (0.85) (0.39) (0.31) (0.52)

Financial literacy (G&J) 0.054 -0.051 -0.177** -0.028 -0.020 0.017(0.05) (0.06) (0.07) (0.05) (0.03) (0.05)

I know financial products 0.067 0.354*** 0.336** 0.334*** 0.458*** 0.355***(0.11) (0.13) (0.17) (0.11) (0.08) (0.14)

Years at UC: < 1 -1.399* -0.632 1.198*** 0.895 0.682** 2.064***(0.71) (0.68) (0.41) (0.73) (0.32) (0.28)

Think carefully -0.028 0.001 0.061 -0.012 -0.061 0.064(0.07) (0.10) (0.12) (0.09) (0.06) (0.09)

Cons 2.236 1.138 3.686 3.796** 1.421 2.635(2.19) (2.36) (3.39) (1.70) (1.46) (1.97)

N obs 1686 1686 1686 1686 1686 1686Wald test (ρ=0) 0.05 0.14 0.46 0.02 0.35 0.25p-value 0.829 0.713 0.498 0.884 0.553 0.614

Unicredit 2007. Standard errors reported in parentheses are robust to heteroskedasticity.

22

Table 9: Which of these statements best describes your behaviour in decidinghow to invest your savings?

Unconditional Conditionalon having

risky assets

I decide completely autonomously, the bank executes my decisions 8.60 12.03I tell bank/advisor how I intend to invest and ask for their opinion 21.59 30.21I consider bank/advisor proposals before deciding 27.16 38.01I mostly rely on bank/advisor for my investment decisions 11.51 16.10I let bank/advisor decide everything 2.61 3.65Non-participation 28.53

Total 100 100N 1,686 1,205Unicredit 2007.

23

Table 10: Dep Var: Probability of Holding Risky Assets (Mfx)

I II III IV V

Female (d) 0.011 0.015 0.019 0.017 0.017(0.02) (0.02) (0.02) (0.02) (0.02)

Age 0.005 0.004 0.003 -0.001 -0.002(0.01) (0.00) (0.00) (0.00) (0.01)

Age squared -0.000 -0.000 -0.000 0.000 0.000(0.00) (0.00) (0.00) (0.00) (0.00)

Years school 0.006*** 0.005** 0.003 0.003 0.004(0.00) (0.00) (0.00) (0.00) (0.00)

Self-employed (d) 0.026 0.026 0.021 0.023 0.026(0.02) (0.02) (0.02) (0.02) (0.02)

Center (d) -0.026 -0.023 -0.020 -0.003 -0.003(0.02) (0.02) (0.02) (0.02) (0.02)

South and Isles (d) -0.073*** -0.076*** -0.066*** -0.046** -0.048**(0.02) (0.02) (0.02) (0.02) (0.02)

Log tot ind income 0.015* 0.013 0.012 0.015* 0.014(0.01) (0.01) (0.01) (0.01) (0.01)

Log H FinW 0.044*** 0.043*** 0.041*** 0.037*** 0.038***(0.01) (0.01) (0.01) (0.01) (0.01)

H FinW refuse (d) 0.519*** 0.510*** 0.491*** 0.426** 0.416**(0.17) (0.17) (0.17) (0.17) (0.17)

Experience 0.008*** 0.008*** 0.007*** 0.007*** 0.007***(0.00) (0.00) (0.00) (0.00) (0.00)

Very risk averse (d) -0.149*** -0.144*** -0.121*** -0.124*** -0.124***(0.03) (0.03) (0.03) (0.03) (0.03)

Has mortgage (d) -0.096*** -0.094*** -0.091** -0.071** -0.091**(0.04) (0.04) (0.04) (0.03) (0.04)

Preference for liquidity -0.003*** -0.003*** -0.002*** -0.002*** -0.003***(0.00) (0.00) (0.00) (0.00) (0.00)

Financial literacy 0.021*** 0.018*** 0.017*** 0.018***(0.01) (0.01) (0.01) (0.01)

Trust advisor 0.026*** 0.027*** 0.028***(0.01) (0.01) (0.01)

Self-confidence 0.034*** 0.032*** 0.031***(0.01) (0.01) (0.01)

Years at UC: 6-10 0.035* 0.050**(0.02) (0.02)

Years at UC: 11-20 0.100*** 0.117***(0.02) (0.02)

Years at UC: More 20 0.101*** 0.127***(0.02) (0.03)

N obs 1518 1518 1518 1518 1423Log-lik -1066.545 -1053.293 -1010.686 -992.647 -943.071ρ 0.089 -0.026 0.036 0.053 0.026ρ p-value 0.732 0.920 0.891 0.853 0.929

Unicredit 2007. Standard errors reported in parentheses are robust to het-eroskedasticity.

24

Table 11: Dep Var: Probability of Delegating Financial Decisions (Mfx)

I II III IV V

Female (d) 0.113*** 0.112*** 0.079*** 0.080*** 0.069**(0.03) (0.03) (0.03) (0.03) (0.03)

Age -0.006 -0.006 -0.004 -0.004 -0.006(0.01) (0.01) (0.01) (0.01) (0.01)

Age squared 0.000 0.000 0.000 0.000 0.000(0.00) (0.00) (0.00) (0.00) (0.00)

Years school -0.012*** -0.012*** -0.011*** -0.011*** -0.010***(0.00) (0.00) (0.00) (0.00) (0.00)

Self-employed (d) 0.000 -0.002 0.010 0.013 0.013(0.03) (0.03) (0.03) (0.03) (0.03)

Center (d) 0.027 0.024 0.020 0.022 0.017(0.03) (0.03) (0.03) (0.03) (0.03)

South and Isles (d) 0.004 0.011 0.012 0.011 -0.002(0.03) (0.03) (0.03) (0.03) (0.03)

Log tot ind income 0.005 0.007 0.017 0.016 0.015(0.01) (0.01) (0.01) (0.01) (0.01)

Log H FinW -0.002 -0.001 -0.004 -0.003 0.000(0.01) (0.01) (0.01) (0.01) (0.01)

H FinW refuse (d) -0.042 -0.030 -0.049 -0.043 -0.005(0.15) (0.16) (0.15) (0.15) (0.16)

Very risk averse (d) 0.042 0.056 0.052 0.049 0.067(0.05) (0.05) (0.04) (0.05) (0.05)

Experience -0.002 -0.002 -0.001 -0.001 -0.001(0.00) (0.00) (0.00) (0.00) (0.00)

Financial literacy -0.030*** -0.021** -0.021* -0.021*(0.01) (0.01) (0.01) (0.01)

Trust advisor 0.109*** 0.107*** 0.121***(0.02) (0.02) (0.02)

Self-confidence -0.045** -0.046** -0.046**(0.02) (0.02) (0.02)

Years at UC: 6-10 0.042 0.032(0.05) (0.06)

Years at UC: 11-20 -0.004 -0.017(0.05) (0.06)

Years at UC: More 20 0.029 0.016(0.05) (0.06)

N obs 1518 1518 1518 1518 1423Log-lik -1066.545 -1053.293 -1010.686 -992.647 -943.071ρ 0.089 -0.026 0.036 0.053 0.026ρ p-value 0.732 0.920 0.891 0.853 0.929

Unicredit 2007. Standard errors reported in parentheses are robust to het-eroskedasticity.

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Table 12: Dep Var: Probability of Delegating Financial Decisions

First stage GMM second stage Control Function Probit(Dep Var: trust) (Dep Var: delegation) (Dep Var: delegation)

Female 0.150** 0.088** 0.237*(0.07) (0.04) (0.14)

Age -0.007 -0.006 -0.007(0.02) (0.01) (0.03)

Age squared 0.000 0.000 0.000(0.00) (0.00) (0.00)

Years school -0.002 -0.011*** -0.044***(0.01) (0.00) (0.01)

Self-employed 0.006 0.010 0.060(0.05) (0.02) (0.09)

Center -0.019 0.011 0.100(0.06) (0.04) (0.13)

South and Isles 0.287* 0.005 0.109(0.15) (0.03) (0.18)

Log tot ind income -0.097*** 0.007 0.069(0.03) (0.03) (0.06)

Log H FinW 0.020 0.001 -0.022(0.03) (0.01) (0.05)

H FinW refuse 0.275 -0.002 -0.278(0.38) (0.16) (0.55)

Very risk averse 0.067 0.061 0.299(0.12) (0.05) (0.23)

Experience -0.011*** -0.002 -0.005(0.00) (0.00) (0.00)

Financial literacy -0.048** -0.026* -0.083**(0.02) (0.02) (0.04)

Years at UC: 6-10 -0.116 0.047 0.193(0.10) (0.05) (0.21)

Years at UC: 11-20 -0.331*** -0.020 -0.005(0.10) (0.08) (0.19)

Years at UC: More 20 -0.207** 0.016 0.095(0.09) (0.06) (0.19)

Self-confidence -0.063 -0.042** -0.200***(0.04) (0.02) (0.08)

GDP growth 0.019 -0.012 -0.058*(0.02) (0.01) (0.03)

Inverse Mills Ratio -1.172*** -0.033(0.18) (0.27)

Trust advisor 0.039 0.722(0.23) (0.67)

Fitted Residuals -0.300(0.68)

Instruments:Referendum 2006 0.015*

(0.01)Trust in banks 0.658

(0.71)Constant 4.617*** 0.480 -2.581

(0.86) (1.23) (2.67)

N obs 1205 1205 1205Adj.R-Squared 0.073 0.084F 2.873Hansen J 0.516Hansen J p-value 0.473

Unicredit 2007. Standard errors reported in parentheses are robust to heteroskedasticityand clustering on provinces.

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