Michael Haliassos, advisor to the ECB, in the IE/Ramón Areces Foundation workshop series

In his talk, Haliassos, a senior lecturer in the field of macroeconomics, examined the difficulties that families may face when taking decisions about savings, the role that institutions play in the financial behavior of consumers, and the importance of financial education to enable families to take the right savings, consumption and investment decisions.

Haliassos underscored that governments, as well as private institutions, have to help strengthen consumers’ financial education. “They have to ensure that citizens have the right information and the right financial instruments in their hands to protect themselves from being destroyed by shocks, by wrong financial decisions”. He went on to remind participants that the quality of institutions and the financial behavior of consumers are closely linked. He also remarked on how the economic environment influences consumer behavior.

“The family is now faced with a number of problems that were not present many years ago,” Haliassos observed. “So, there is one very important issue of how to finance retirement in view of the demographic transition and the inability of social security systems to actually provide enough for retirement. Also families have faced serious risks like unemployment risk or health risks that they need to ensure. They face default risk as a result of getting inappropriate loans or very large sums of money. So, they have to deal with these issues and they have to have the relevant literacy, information to make the right decisions, but in the end also the right protection if something goes wrong.”

Haliassos also pointed out the impact of cultural factor on financial behavior. “We looked at immigrants in Sweden and we documented first that there are cultural differences across different immigrant groups when they are compared to Swedish, and also that these differences are not permanent:  they are influenced by the exposure to the high quality institutions.  In the end some components do persist, we are not going to be able to completely eliminate cultural influence by harmonizing institutions but there is a tendency of people to converge to common behavior when faced with healthy institutions.”