Being in Good Hands: Deposit Insurance and Peers Financial Sophistication

We study the effect on savings of the Deposit Guarantee Scheme (DGS) re- form in the Netherlands. We study savings allocation in a DGS environment and we empirically investigate how bank accounts allocations of the Dutch house- holds changed as a response to the reform. Moreover, we highlight the indirect effect on consumption and stock market investments and the role of peers in influencing people’s financial decisions. We find evidence of bunching behavior at the insurance limit. Results indicate a general positive impact on saving amounts, with heterogenous effects depending on relative peers’ financial soph- istication: people with unsophisticated peers tend to save more as a response to the reform, while people with sophisticated peers tend to save more cautiously.