Financial Literacy and Its Impact on Retirement Planning and Financial Decision-making, High school final essays of English

Download Financial Literacy and Its Impact on Retirement Planning and Financial Decision-making and more High school final essays English in PDF only on Docsity! No. 2008/19 Financial Literacy: An Essential Tool for Informed Consumer Choice? Annamaria Lusardi Center for Financial Studies The Center for Financial Studies is a nonprofit research organization, supported by an association of more than 120 banks, insurance companies, industrial corporations and public institutions. Established in 1968 and closely affiliated with the University of Frankfurt, it provides a strong link between the financial community and academia. The CFS Working Paper Series presents the result of scientific research on selected topics in the field of money, banking and finance. The authors were either participants in the Center´s Research Fellow Program or members of one of the Center´s Research Projects. If you would like to know more about the Center for Financial Studies, please let us know of your interest. Prof. Dr. Jan Pieter Krahnen Prof. Volker Wieland, Ph.D. consider a wider spectrum of financial behavior; for example not only saving, asset allocation, and pension but also borrowing behavior. Theoretical Framework The theoretical framework used to model consumption/saving decisions posits that rational and foresighted consumers derive utility from consumption over their lifetime. In the simplest format, the consumer has a lifetime expected utility, which is the expected value of the sum of per-period utility discounted to the present from the consumer’s current age to his/her oldest attainable age. Assets and consumption each period are determined endogenously by maximizing this utility function subject to an intertemporal budget constraint, which represents the present discounted value of future resources (which include earnings, Social Security, and pensions). This model posits that the consumer holds expectations regarding discount rates, investment returns, earnings, pension and Social Security benefits, and inflation. Further, it posits that the consumer uses that information to formulate and execute optimal consumption/saving plans. In other words, the consumer looks ahead and plans for the future taking his/her lifetime resources into account. Even in this basic formulation of the saving decision, the actual requirements for making saving decisions are demanding: Individuals have to collect information and make forecasts about many variables, from Social Security and pensions to interest rates and projected inflation, to name just a few. Moreover, they have to perform calculations that require, at minimum, an understanding of compound interest and the time value of money. Decisions about how much to accumulate and how much to borrow to be able to smooth consumption over the life-cycle also require an understanding of the working of interest rates. 3 Do individuals possess the level of financial knowledge and numeracy necessary to perform the calculations mentioned above? Does saving and borrowing behavior follow the predictions of these simple models? While financial literacy has often been overlooked in previous studies, it can be an important predictor of financial behavior. The next section provides an examination of the level of literacy individuals possess. Basic and Advanced Financial Literacy Basic Financial Literacy Several surveys exist that report information on financial knowledge in sub-groups or among the whole U.S. population.2 However, these surveys rarely provide information on variables related to economic outcomes such as saving, borrowing, or retirement planning. In an effort to combine data on financial literacy with data on financial behavior, Lusardi and Mitchell (2006) have pioneered inserting questions measuring financial literacy into major U.S. surveys. They first designed a special module on financial literacy for the 2004 Health and Retirement Study (HRS); this module has now been added to the National Longitudinal Survey of Youth (NLSY). These and other questions measuring financial knowledge have also been added to the Rand American Life Panel (ALP) and to other surveys covering specific sub-groups of the population.3 The addition of these types of questions to existing surveys not only allows researchers to evaluate levels of financial knowledge but, most importantly, makes it possible to link financial literacy to a rich set of information about household financial behavior. 2 See Lusardi and Mitchell (2007b) for an overview of these surveys. 3 These questions have been added to a survey of participants to the state employees plan in the state of Nebraska (Medill 2007). Moreover, they have been added to the 2005 Dutch DNB Household Survey (van Rooij, Lusardi and Alessie 2007), the 2006 Italian Household Survey on Income and Wealth, a 2007 pilot survey of participants in Mexico’s privatized Social Security plan (Hastings 2007), and a survey on entrepreneurs in Sri Lanka (de Mel, McKenzie and Woodruff 2008) 4 Given the limited number of questions that can effectively be added to surveys, researchers have to assess financial literacy from only a handful of questions. But which questions should be asked to determine whether respondents possess financial literacy? Moreover, which data allow researchers to most accurately assess the effect of literacy on behavior? As will be reported below, it is possible to gauge financial knowledge from a small set of questions. The three questions Lusardi and Mitchell (2006) devised for the HRS measure basic but fundamental concepts relating to financial literacy, such as the working of interest rates, the effects of inflation, and the concept of risk diversification. The questions are as follows: 1) Suppose you had $100 in a savings account and the interest rate was 2% per year. After 5 years, how much do you think you would have in the account if you left the money to grow: more than $102, exactly $102, less than $102? 2) Imagine that the interest rate on your savings account was 1% per year and inflation was 2% per year. After 1 year, would you be able to buy more than, exactly the same as, or less than today with the money in this account? 3) Do you think that the following statement is true or false? “Buying a single company stock usually provides a safer return than a stock mutual fund.”4 The first two questions (compound and inflation) evaluate whether respondents display knowledge of fundamental economic concepts and competence with basic financial numeracy. The third question (stock risk) evaluates respondents’ knowledge of risk diversification, a crucial element of any informed investment decision. 4 In addition to the list of answers provided above, respondents can also choose that they do not know the answer to the question (DK), or they can refuse to answer (refusal). 5 DNB Household Survey6 and are similar to questions used in other U.S. surveys.7 Because the question about risk diversification had been found to be hard to answer, it was included in the set of questions on advanced financial literacy. The exact wording of these questions is as follows: 1. Function of Stock Market Which of the following statements describes the main function of the stock market? (i) The stock market helps to predict stock earnings; (ii) The stock market results in an increase in the price of stocks; (iii) The stock market brings people who want to buy stocks together with those who want to sell stocks; (iv) None of the above; (v) DK; (vi) Refuse. 2. Knowledge of Mutual Funds Which of the following statements is correct? (i) Once one invests in a mutual fund, one cannot withdraw the money in the first year; (ii) Mutual funds can invest in several assets, for example invest in both stocks and bonds; (iii) Mutual funds pay a guaranteed rate of return which depends on their past performance; (iv) None of the above; (v) DK; (vi) Refuse. 3. Relationship Between Interest Rates and Bond Prices If the interest rate falls, what should happen to bond prices? (i) Rise; (ii) Fall; (iii) Stay the same; (iv) None of the above; (v) DK; (vi) Refuse. 4. Risk Diversification: Company Stock or Mutual Fund? 6 See van Rooij, Lusardi, and Alessie (2007) for a detailed explanation and review of these questions. 7 Specifically, questions were taken from the National Council of Economic Education Survey, the NASD Investor Knowledge Quiz, the 2004 Health and Retirement Study module on financial literacy and planning, the Survey of Financial Literacy in Washington State, and the 2001 Survey of Consumers. 8 True or false? Buying a company stock usually provides a safer return than a stock mutual fund. (i) True; (ii) False; (iii) DK; (iv) Refuse. 5. Riskier: Stocks or Bonds? True or false? Stocks are normally riskier than bonds. (i) True; (ii) False; (iii) DK; (iv) Refuse. 6. Long Period Returns Considering a long time period (for example 10 or 20 years), which asset normally gives the highest return? (i) Savings accounts; (ii) Bonds; (iii) Stocks; (iv) DK; (vi) Refuse. 7. Highest Fluctuations Normally, which asset displays the highest fluctuations over time? (i) Savings accounts; (ii) Bonds; (iii) Stocks; (iv) DK; (v) Refuse. 8. Risk Diversification: Spreading Money Among Different Assets When an investor spreads his money among different assets, does the risk of losing money: (i) Increase; (ii) Decrease; (iii) Stay the same; (iv) DK; (v) Refuse. The average age of the ALP sample is about 53, and most respondents are between the ages of 40 and 60. The sample is composed mostly of highly educated (over half have at least a college education) and high-income (almost 30 percent earn $100,000 or more) respondents. This sample characteristic is partly due to the fact that the survey is done online, and frequent internet users are not a representative sample of the U.S. population. Yet it is useful to see how these respondents fare when asked questions about financial concepts they should have dealt with in their financial decisions.8 8 See Lusardi and Mitchell (2007c) for details. These statistics are based on a preliminary release of the ALP and are unweighted. 9 Responses to the more complex battery of advanced financial literacy questions are summarized in Table 2. Panel A shows that most respondents, over three-quarters, do get most of the answers right, so they have some knowledge of how the stock market and risk diversification work. They are also more likely to be knowledgeable about fluctuations in assets than they are about patterns of asset returns. But only about one-third of the sample knows about the relationship between bond pricing and interest rates, indicating striking ignorance of how assets are priced.9 Moreover, while the large majority of respondents responded correctly to several of the more advanced questions, only one-fifth of respondents were able to answer all of these questions correctly (Table 2, panel B). Thus, advanced knowledge is not widespread, even among a sample of highly educated respondents.10 Several other surveys covering the U.S. population or specific sub-groups have also documented low levels of advanced financial knowledge across the age spectrum. For example, data from five surveys from the Jump$tart Coalition for Personal Financial Literacy spanning from 1997 to 2006 show that only a small minority of high school students score above a passing grade in financial literacy. Low scores are not only pervasive among high school students but have changed little over time (Mandell 2008). These findings are confirmed by the National Council of Economic Education (NCEE), which periodically surveys high school students and 9 Very similar findings are provided by Moore (2003), which also reports that the fraction of correct responses to questions measuring sophisticated knowledge is very low. 10 When levels of literacy are low, one may wonder whether respondents even understand the meaning of the questions they are asked. To investigate whether the wording of questions matters, two randomly chosen groups of respondents to the ALP were posed the same questions but with different wording. This was implemented for three questions: a rather simple question about the risk differences between bonds and stocks (a first group was asked: “Stock are normally riskier than bonds; true or false?” while a second group was asked: “Bonds are normally riskier than stocks; true or false?”); a more difficult question about risk diversification (a first group was asked: “Buying a company stock usually provides a safer return than a stock mutual fund; true or false?” while a second group was asked: “Buying a stock mutual fund usually provides a safer return than a single company stock; true or false?”); and the most difficult question about the link between bond prices and interest rates (a first group was asked: “If the interest rate falls, what should happen to bond prices?” and a second group was asked: “If the interest rate rises, what should happen to bond prices?”). The wording of the question did not matter for the first two questions, but it did matter for the third question, showing a fair amount of guessing and measurement error in the responses to complex financial literacy questions. See Lusardi and Mitchell (2007c) for details. 10 the impact of financial literacy on financial behavior later in life. Because financial literacy can be affected by experience with saving and investing—learning by doing—data on literacy early in life (or on other determinants of financial literacy) is necessary to evaluate the impact of literacy on financial behavior, as will be explained in the next section. Does Financial Literacy Matter? As mentioned earlier, one of the major advantages of inserting questions about financial literacy in major U.S. surveys is that researchers can assess whether literacy influences financial decision-making. Table 3 displays the relationship between financial literacy and retirement planning as measured in the 2004 HRS core data (see Lusardi and Mitchell 2007a). As shown by Lusardi (2003), Lusardi and Beeler (2007) and Lusardi and Mitchell (2007a), retirement planning is a powerful predictor of wealth accumulation; those who plan have more than double the wealth of those who have not done any retirement planning. Financial literacy matters for planning: Those who are more financially knowledgeable are much more likely to have planned for retirement. In terms of economic importance, both the knowledge of interest compounding and the ability to perform simple calculations (such as a lottery division) are the strongest predictors of planning. This is to be expected, given that any saving plan requires some numeracy, the ability to calculate present values, and an understanding of the advantages of starting to save early in life. Financial literacy is not simply a proxy for low education, race, or gender; as has been noted, women, minorities, and those with low education are disproportionately less likely to be financially literate. Even after accounting for many 13 demographic characteristics, Table 3 (column III) shows that financial literacy continues to be an important determinant of planning.13 One may argue that financial literacy and retirement planning are both decision variables and that the act of planning may enhance financial knowledge. In other words, those who want to plan for retirement may invest in acquiring financial knowledge. To evaluate the relationship between literacy and planning, it is important to have information beyond individuals’ current levels of financial literacy. Lusardi and Mitchell (2007c) use information on individuals’ past financial literacy, prior to their entering the job market. They find that those who were financially literate when young are more likely to plan for retirement, showing that it is literacy that affects planning and not the other way around. Advanced financial literacy also matters for financial decision-making. Van Rooij, Lusardi, and Alessie (2007) use questions they designed for a module on financial literacy for the Dutch DNB Household Survey to show that financially sophisticated households are more likely to participate in the stock market. They address the argument that participation in the stock market or success in investing may also influence financial knowledge by relying on individuals’ financial knowledge in the past and prior to investing in the stock market. They find that those who were literate when young are more likely to invest in stocks, again showing there is an independent effect of literacy on stock market participation. Other studies have confirmed the positive association between financial knowledge and household financial decision-making. Stango and Zinman (2007) show that those who are unable to correctly calculate interest rates out of a stream of payments end up borrowing more and accumulating lower amounts of wealth. Lusardi and Tufano (2008) find that those who severely underestimate the power of interest compounding are more likely to experience difficulties 13 See, also, Lusardi and Mitchell (2006). 14 repaying debt. Agarwal et al. (2007) show that financial mistakes are most prevalent among the young and the elderly—demographic groups that display the lowest levels of financial knowledge and cognitive ability. Hilgerth, Hogarth, and Beverly (2003) also document a positive link between financial knowledge and financial behavior. Campbell (2006) further demonstrates that many investors failed to refinance their mortgages during a period of falling interest rates. This finding is consistent with lack of literacy, as those who failed to refinance were disproportionately investors with low education. Those investors also seem less likely to know the terms of their mortgages, including the interest rates they pay (Bucks and Pence 2006 and Moore 2003). Moore (2003) also shows that borrowers who took out high-cost mortgages display little financial literacy. Discussion As shown throughout this paper, the existence of financial literacy should not be taken for granted. Financial illiteracy is widespread and particularly acute among specific groups, including those with low education, women, and minorities. Given the increased complexity of day-to-day financial transactions, the evidence of illiteracy raises important questions for policy. The evidence on the effectiveness of financial education programs has provided contrasting results. On the one hand, Bernheim and Garrett (2003), Lusardi (2004), and Clark and d’Ambrosio (2008) find that retirement seminars have an effect on savings and retirement plans. On the other had, Duflo and Saez (2003, 2004) and Madrian and Shea (2001), among others, find little or no effects of financial education programs on savings.14 The mixed evidence on the effectiveness of financial education programs has led some to question whether it is worth trying to improve financial literacy. In fact, it is not clear there is even a choice. As it was 14 For a detailed discussion, see Lusardi (2004, 2005) and Lusardi and Mitchell (2007b). 15 pensions, invest their pension assets, or borrow to buy a house. In this way, individuals may learn about some basic financial concepts and may reduce their reliance on random advice and potentially misleading tips from those around them. Several initiatives have been undertaken in other fields with the objective of “educating” consumers, and they provide suggestions for financial education as well.17 For example, in the field of health, guidelines have been offered on how to eat well. In the same way that a “food pyramid” provides general information about how people should eat, a “saving pyramid” could provide general guidelines on how to save and invest. Principles such as diversification of investments, exploitation of the power of interest compounding, taking advantage of tax-favored assets or employer matches are fundamental concepts that can benefit every investor. Clearly, there is already a lot of information on these topics. However, as there are many books about diets, so there are many books about how to save and invest, and it may be worthwhile to provide a “seal of approval” from experts in the field. For example, one official website that people can turn to may be more powerful than the many websites that are now available and for which there are no guarantees about quality. Given the current low levels of financial literacy, employers and the government should devise and encourage programs that simplify financial decision-making as well as provide sources of reliable financial advice. One way to reduce the barriers that individuals face when making saving decisions is to simplify their planning process.18 For example, Lusardi, Keller and Keller (2008) used a social marketing approach to develop a planning aid to motivate and encourage new hires at a not-for-profit institution to open and contribute to supplementary 17 For example, Woloshin, Schwartz, and Welch (2002) also report that patients are not numerate and do not understand statistics. They propose a way to describe statistics using simple charts. 18 See Choi, Laibson and Madrian (2006) for the analysis of another program that relies on simplifying decision- making. 18 retirement accounts. The planning aid they designed displays several interesting features. First, it breaks down the process of enrollment in supplementary pensions into several small steps, describing to participants exactly what they need to do to be able to enroll online. Moreover, the aid provides several pieces of information to help overcome barriers to saving, such as describing the low minimum amount of income employees can contribute (in addition to the maximum) and indicating the default fund that the employer has chosen for them (a life-cycle fund). Finally, the planning aid contains pictures and messages designed to motivate participants to save. The planning aid was designed following thorough data collection. Lusardi, Keller and Keller (2008) devised a survey asking explicitly about barriers to saving, sources of financial advice, and level of financial knowledge and attractive features of a pension plan. They conducted focus groups and in-depth interviews (with both employees and human resources administrators) to shed more light on the impediments to saving. These data-collection methods, common in the field of marketing, are well suited to capturing the wide heterogeneity relating to individuals’ saving decisions. The program was very successful; contribution rates to supplementary pensions tripled after the introduction of the planning aid. The results of this program have implications for financial education programs and policies to foster saving. First, while economic incentives such as employer matches or tax advantages may be useful, there are many more methods that can be employed to make people save. In fact, given the massive lack of information and lack of financial knowledge that exists in the general population, implementation of programs aimed at simplifying saving decisions may prove to be a cost-effective strategy. Second, individuals are most prone to decision-making in specific time periods. For example, the start of a new job pushes people to think about saving 19 (often because they have to make decisions about their pensions), and it may be very important to exploit such “teachable moments.” Third, to be effective, programs have to recognize the many differences among individuals, not only in terms of preferences and economic circumstances but also of their existing levels of information, financial sophistication, and ability to carry though with plans. In other words, relying on “one-size-fits-all” principles can lead to rather ineffective programs. While the problems are many and the challenges are daunting, programs can be designed to change saving behavior. We have a wealth of information to rely on, and that information should make effective financial education increasingly possible. In the current economic environment it is essential to equip consumers with the necessary tools to make informed financial choices. One of these tools is financial literacy. 20 Lusardi, Annamaria (2004), “Savings and the Effectiveness of Financial Education,” in Olivia S. Mitchell and Stephen Utkus (eds.), Pension Design and Structure: New Lessons from Behavioral Finance, Oxford: Oxford University Press, pp. 157–184. Lusardi, Annamaria (2005), “Financial Education and the Saving Behavior of African American and Hispanic Households,” Report for the US Department of Labor. http://www.dartmouth.edu/~alusardi/Papers/Lusardi_pdf.pdf Lusardi, Annamaria (2008), “Household Saving Behavior: The Role of Literacy, Information and Financial Education Programs,” NBER Working Paper n. 13824. Lusardi, Annamaria, Punam Keller and Adam Keller (2008), “New Ways to Make People Save: A Social Marketing Approach,” forthcoming in Annamaria Lusardi (ed.), Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, University of Chicago Press. Lusardi, Annamaria and Jason Beeler (2007), “Saving Between Cohorts: The Role of Planning,” in Brigitte Madrian, Olivia Mitchell, Beth Soldo (eds), Redefining Retirement. How Will Boomers Fare?, Oxford: Oxford University Press, pp. 271–295. Lusardi, Annamaria and Olivia S. Mitchell (2006), “Financial Literacy and Planning: Implications for Retirement Wellbeing,” Working Paper, Pension Research Council, Wharton School, University of Pennsylvania. Lusardi, Annamaria and Olivia S. Mitchell (2007a), “Baby Boomer Retirement Security: The Role of Planning, Financial Literacy, and Housing Wealth,” Journal of Monetary Economics, 54, pp. 205–224. Lusardi, Annamaria and Olivia Mitchell (2007b), “Financial Literacy and Retirement Preparedness. Evidence and Implications for Financial Education,” Business Economics, January 2007, pp. 35–44. Lusardi, Annamaria and Olivia Mitchell (2007c), “Financial Literacy and Retirement Planning: New Evidence from the Rand American Life Panel,” MRRC Working Paper n. 2007-157. Lusardi, Annamaria and Olivia Mitchell (2008), “Planning and Financial Literacy: How Do Women Fare?,” forthcoming American Economic Review, May 2008. Lusardi, Annamaria and Peter Tufano (2008), “Debt Literacy, Financial Experience, and Overindebtedness,” mimeo, Harvard Business School. Madrian, Brigitte and Dennis Shea (2001), “Preaching to the Converted and Converting Those Taught: Financial Education in the Workplace,” University of Chicago Working Paper. Mandell, Lewis (2004), “Financial Literacy: Are We Improving?” Washington, D.C.: Jump$tart Coalition for Personal Financial Literacy. 23 Mandell, Lewis (2008), “Financial Literacy in High School,” forthcoming in Annamaria Lusardi (ed.), Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, University of Chicago Press. Medill Colleen (2007), “Participant Perceptions and Decision-Making Concerning Retirement Benefits, “paper present to the 9th Annual Joint Conference of the Retirement Research Consortium, Washington, D.C., August 9-10, 2007. Moore, Danna (2003), “Survey of Financial Literacy in Washington State: Knowledge, Behavior, Attitudes and Experiences,” Technical report 03-39, Social and Economic Sciences Research Center, Washington State University. National Council on Economic Education (2005), “What American Teens and Adults Know About Economics,” Washington, D.C. Schreiner Mark and Michael Sherraden (2007), Can the Poor Save? Saving and Asset Building in Individual Development Accounts, New Brunswick, NJ: Transaction Publishers. Sherraden Michael and Ray Boshara (2008), “Learning from Individual Development Accounts,” forthcoming in Annamaria Lusardi (ed.), Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, University of Chicago Press. Smith Barbara and Fiona Stewart (2008), “Learning from the Experience of OECD Countries: Lessons for Policy, Programs, and Evaluations,” forthcoming in Annamaria Lusardi (ed.), Overcoming the Saving Slump: How to Increase the Effectiveness of Financial Education and Saving Programs, University of Chicago Press. Stango, Victor and Jonathan Zinman (2007), “Fuzzy Math and Red Ink: When the Opportunity Cost of Consumption is Not What It Seems,” Working Paper, Dartmouth College. Van Rooij, Maarten, Annamaria Lusardi and Rob Alessie (2007), “Financial Literacy and Stock Market Participation,” NBER Working Paper n. 13565. Woloshin Steven, Lisa Schwartz , and Gilbert Welch (2002), “Risk Charts: Putting Cancer in Context. Journal of the National Cancer Institute, 94(11), pp. 799-804. 24 Table 1: Financial Literacy Among Early Baby Boomers Question Type Correct (%) Incorrect (%) Do Not Know (%) Percentage Calculation 83.5 13.2 2.8 Lottery Division 55.9 34.4 8.7 Compound Interest* 17.8 78.5 3.2 Note: *Conditional on being asked the question. Percentages may not sum to 100 due to a few respondents who refused to answer the questions. Observations weighted using HRS household weights. The total number of observation is 1,984. Adapted from Lusardi and Mitchell (2007a). 25 Figure 1: Financial Literacy: By Age 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% ≤ 60 75.88% 80.79% 59.95% 61-70 67.22% 79.72% 54.01% > 70 57.63% 64.89% 42.61% Compound Interest Inflation Stock Risk 28 Figure 2: Financial Literacy: By Gender 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 70.00% 80.00% 90.00% Male 74.70% 82.20% 59.30% Female 61.90% 70.50% 47.50% Compound Interest Inflation Stock risk 29 CFS Working Paper Series: No. Author(s) Title 2008/18 Annamaria Lusardi Increasing the Effectiveness of Financial Education in the Workplace 2008/17 Volker Wieland Learning, Endogenous Indexation and Disinflation in the New-Keynesian Model 2008/16 Athanasios Orphanides Volker Wieland Economic Projections and Rules-of-Thumb for Monetary Policy 2008/15 Jan Pieter Krahnen Christian Wilde Risk Transfer with CDOs 2008/14 Stefan Mittnik Tina Yener Value-at-Risk and Expected Shortfall for Rare Events 2008/13 Serena Lamartina Andrea Zaghini Increasing Public Expenditures: Wagner’s Law in OECD Countries 2008/12 Jürgen Gaul Erik Theissen A Partially Linear Approach to Modelling the Dynamics of Spot and Futures Prices 2008/11 Roman Kräussl Niels van Elsland Constructing the True Art Market Index - A Novel 2-Step Hedonic Approach and its Application to the German Art Market 2008/10 Alan Muller Roman Kräussl Do Markets Love Misery? Stock Prices and Corporate Philanthropic Disaster Response 2008/09 Christopher D.Carroll Jirka Slacalek Martin Sommer International Evidence on Sticky Consumption Growth Copies of working papers can be downloaded at http://www.ifk-cfs.de