Being in good hands: Deposit insurance and peers financial sophistication

We study the effect on savings of the Deposit Guarantee Scheme (DGS) reform in the Netherlands. We study savings allocation in a DGS environment and we empirically investigate how bank accounts allocations of the Dutch households 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 peoples financial decisions. We find evidence of bunching behavior at the insurance limit. Results indicate a general positive impact on saving amounts, with heterogeneous effects depending on relative peers financial sophistication: people with unsophisticated peers tend to save more as a response to the reform, while people with sophisticated peers tend to save more cautiously.
   
Keywords:  Savings, Deposit Insurance, Peer Effects.
JEL classifications: G18, D14.

Working paper no. 638