Why Do Households Leave Money on the Table? The Case of Subsidized Pension Products

Many households still rely solely on bank deposits, despite the existence of subsidized pension products that guarantee the capital preservation and offer higher expected returns than holding money in bank deposits. We investigate the determinants that affect individuals' decision to leave money on the table by refusing investments in subsidized pension products. Our results show that financial literacy and financial advice are positively related to holding such pension products. Surprisingly, although those products provide the capital preservation guarantee like bank deposits, we find the propensity to invest in subsidized pension products to decrease with higher risk aversion. This finding suggests a potential risk misperception, which might be explained by a higher complexity of those products. In that, our results emphasize the role of financial literacy and financial advisors for sound financial decision-making in increasingly complex financial markets