Professional financial advice, self-control and saving behavior

This study investigates whether professional financial advice ("PFA") can assist households in making better-informed financial decisions and whether PFA may help households achieve better self-control in implementing financial plans. In particular, we examine the effects of PFA and self-control ability on saving behavior, as well as the interaction of PFA and self-control on saving behavior. We extend the dual-self model of impulse control and derive three hypotheses: (a) people with higher levels of self-control save more than those with lower levels of self-control; (b) PFA has a positive effect on saving behavior; and (c) people with lower levels of self-control benefit more from obtaining PFA than those with higher levels of self-control. We use a German household panel dataset SAVE, which was collected annually from 2005 to 2009. Respondents are asked whether they have discussed financial matters with financial advisors in banks, insurance companies or financial service providers. Using a number of behavioral proxies of self-control, we create an aggregate measure of self-control through factor analysis. We estimate a fixed-effects model to identify the effects of PFA and self-control on financial assets. Empirical results show that both PFA and self-control have a significant positive relationship with financial assets. The interaction term of PFA and self-control is a significant predictor of financial assets. We discuss conclusions for the financial advising industry and public policy aimed at consumer financial literacy.