New Research: Does financial regulation unintentionally ignore less privileged population groups?
Research conducted by Prof. Orly Sade of the Hebrew University of Jerusalem and Maya Haran Rosen of the Bank of Israel examines the “Money Mountain” regulation as a test case of digital financial regulation regarding pension savings. In 2013, the Capital Market, Saving and Insurance Division launched a campaign with the goal of causing people with small, inactive savings accounts to withdraw those savings or to combine them with active accounts. These small accounts could easily become “lost funds” that people “forget” at institutional investors. As part of the campaign, the Division set up an interface to locate inactive funds and initiated a publicity campaign on radio and TV under the title “the Money Mountain”. In addition, in 2014, a temporary order was issued allowing the tax-exempt withdrawal of savings from provident funds with a balance of less than NIS 7,000. The temporary order was instituted to permit savers to withdraw their savings before minimum management fees would go into effect (January 2015) which would cause these savings to disappear with time.
The research examines the characteristics of the population groups that heard of the regulation or took an action due to exposure to the regulation. We find that the government’s efforts did not lead to a withdrawal from most of the active accounts and that not all the population groups were exposed equally to the regulation. Information obtained from a provident fund indicates that those who withdrew funds from small accounts due to the regulatory campaign live in the central regions of the country, in cities with high socioeconomic indices, and are older than the population that did not withdraw money.
Information received from an Internet survey of a representative sample of the Israeli population showed that people with low financial literacy (Figure 1.a), low self confidence about their pension knowledge (Figure 1.b), and the unemployed were less aware of the regulatory campaigns. It appears that self confidence about pension information is an important characteristic, which impacts more on taking action due to the campaign than objective financial understanding. The survey indicates that other characteristics—gender, age, schooling, and year of immigration—are also important to the success of the campaign, and regulators in Israel should take these characteristics into account if they want to conduct a new campaign.