Improving Savings by Reducing Investment Mistakes

Q&A with Ugo Panizza

Ugo Panizza, Professor at the Graduate Institute of International and Development Studies in Geneva, believes a process of financial education can have a large effect on the welfare of middle-class households in advanced economies.

What was your inspiration?

If you study economics, people keep asking you, 'How should I invest my money?' So I always thought at some point I should write down the answers. And then I read a paper saying that the differences in investment strategies contribute to income inequality, so I thought I could sort of kill two birds with one stone, write down my paper explaining to people how they should invest their money and at the same time find a way to reduce income inequality by improving investment strategies.

What are you hoping to achieve?

My idea is to find a way to help people improve the way in which they invest their savings, basically by showing them the best things to do is buy a low fee, passively managed index that tracks the world equity markets. I would like to push the idea and see if I can get political traction in some country so people can adopt my proposal. It’s very simple; there’s no cost. Basically, it’s just an information campaign.

What are some challenges you've faced?

The idea is simple … [but] there are people who make a lot of money by convincing investors to do active investing. My estimates show that just in the US, fees linked to active management, which does not deliver superior return but generates a lot of fees, add up to $190 billion. So clearly those collecting these fees would not be happy with my proposal and might try to lobby against it.

What takeaways do you have from the Symposium?

Today’s event was great. I had a great discussant, Carmen Reinhart. She gave me great feedback about the paper, some suggestions about how to improve my proposal. [We] had a nice discussion with participants. So the event was great, and I think the discussion is helping me to shape the proposal, and I hope to give visibility to the proposal.