This paper contributes to the on-going debate on income inequality in advanced economies with a proposal aimed at reducing costly investment mistakes that are prevalent among middle-class households. The paper starts by describing how households should invest, compares it with what we know about how households do invest, and highlights discrepancies between the two (investment mistakes). After evaluating the costs of investment mistakes, the paper suggests that these mistakes could be reduced with a process of financial education and modified versions of already available ETF-like instruments that track a world equity index. The policy described in this paper is immediately actionable at basically no cost and can have a large effect on the welfare of middle-class households in advanced economies.
Author: Ugo Panizza
Professor of Economics and Pictet Chair in Finance and Development at the Graduate Institute of International and Development Studies in Geneva. Mr. Panizza is the head of the Department of International Economics and Deputy Director of the Center for Finance and Development. Prior to joining the Institute, he was the Chief of the Debt and Finance Analysis Unit at the United Nations Conference on Trade and Development (UNCTAD) and a Senior Economist in the Research Department of the Inter-American Development Bank. In the past, Mr. Panizza worked at the World Bank and taught at the American University of Beirut and at the University of Torino. He’s a former member of the Executive Committee of the Latin American Economic Association (LACEA) and an editor of the Association's journal Economia. Mr. Panizza is also part of the editorial board of The World Bank Economic Review, the Journal of Economic Systems, and the Review of Economics and Institutions.