The Self-Selection Effects of Retail Financial Products. The Case of Contractual Savings for Housing in Germany

Abstract

“Contractual Savings for Housing” (CSH) products are popular in Germany. CSH may seem redundant in developed financial markets in which households have access to banking products. Based on theoretical models, we interpret CSH as a means to separate customers by self-selection. Using than 140,000 observations from more than 9,300 households covering the period 1998-2012, we conduct a regression and find robust support that CSH contributes to separate households with different profiles. This means the choice of CSH produces valuable information when risk is relevant. Moreover, we find empirical evidence that CSH attracts risk-averse households with a low time preference.