Economist: Finns are a "lottery nation" in making investments
Samuli Knüpfer calls for more diversification, less local patriotism in household investment
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A newly-minted doctor of economics, who has been recruited by a prestigious British university, sees the Finnish people as a nation of lottery players, for whom investment is a way to get rich quick. Finns tend to feel that long-term saving and investing are not important, because their pension plans are generally seen to be in order.
Finnish households have grown accustomed to operating on the consumer goods market, but in the world of investments, special offers do not work, as was most recently demonstrated by the collapse of the WinCapita investment club.
As putting money aside is not seen as a high priority, people often do not study investment information very hard.
Dr. Samuli Knüpfer, an economic scientist who has studied investments made by households, sees education and investment accounts as ways to raise interest in household investments.
"Education could help bring out the importance of saving money. It could also help in the formation of realistic expectations for the return on investment", Knüpfer ponders.
In the same breath he adds that Finnish households might not invest, even if they knew that they should. A lack of self-control and a tendency to shy away from possible losses can block the implementation of good intentions.
There is also the question of a lack of confidence: households do not have complete trust in the workings of the financial system, nor in the motives of those offering services.
Knüpfer emphasises that education is not an easy task. Long-term changes in behaviour do not emerge easily.
"Especially with small investors and those with less education, the road is long for financial assets to be given the same attention as health. It should be a skill that is taught early at school", Knüpfer says.
The question is also political. What is at stake is how great a priority the state puts on encouraging citizens to save.
Knüpfer defended his doctoral thesis on the investment behaviour of households in November at the Helsinki School of Economics and Business Administration. There has not been much research on the subject, which has been overshadowed by other phenomena affecting commodities and financial markets.
Now Knüpfer, at the age of 29, is to take on the post of Assistant Professor of the prestigious London Business School.
Under the tenure track system, Knüpfer stands to get a full professorship if both sides are pleased with each other in seven years.
The Helsinki School of Economics and Business Administration does not know of another case in which an economist who has completed a doctorate only in Finland has been offered as prestigious a position at an institution of as high a standard as that of LBS.
When Finnish households invest, they often make errors in judgement. For instance, Knüpfer points out that an ordinary Finnish investor is often very loyal to his or her home region, favouring local companies in much the same way that a person might support a local sports team.
Local companies are favoured in investment decisions especially in areas where the voter turnout in elections is high, where people live in houses or apartments that they own themselves, where they move house rarely, and where the crime rate is low.
Households suffer from insufficient diversification of their investments. The risk grows, if the investments primarily target shares of the investor's own employer.
Knüpfer notes that people do not understand very well that local, ethically-based, or ideological investments often include hidden costs, which the investor should be able to evaluate personally.
Knüpfer is strongly in favour of individual investment accounts. He would like to see part of people's pensions going into investment accounts where the investor can decide on what companies to include in the portfolio.
He says that Finland could learn a lesson from the pension investment model implemented in Sweden.
"Those who have started to invest actively have suffered a similar fate as local patriots over there. On the other hand, much damage has also been caused by the technology frenzy and running after the advertisements of investment funds", Knüpfer says.
He believes that an investment account is a way to make people acquainted with the investment mechanisms. "On the basis of experiences from Sweden we might nevertheless ask if it is sensible to offer hundreds of options for investment accounts. A few well-considered options would be sufficient. In addition, it should be possible to place all kinds of assets onto the investment accounts.
Tax benefits for voluntary savings for retirement will not help those who are unfamiliar with the world of investing, Knüpfer says, adding that a tax break alone is not enough of an incentive for putting money into savings.
Helsingin Sanomat
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| 22.4.2008 - TODAY |
 Economist: Finns are a "lottery nation" in making investments |
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