Trust and Economic Strategy: Investments in Chile and Argentina
Recent comparative economic histories between Chile and Argentina reveal annually low inflation rates in Chile and chronic hyperinflation in Argentina. Although most researchers agree that there is a strong correlation between high financial literacy and “savvy” financial behavior, few have examined how macro-economic factors, such as inflation, play a significant role in motivating such behavior. Our research attempts to investigate financial behavior by examining how different histories of inflation within Chile and Argentina could have affected trust in financial systems, thereby producing differing investment decisions.
We used a variety of inflation salience to test the effect of trust on financial decision-making in a survey experiment administered to 564 upper-middle class university students in Santiago and Buenos Aires. The corresponding regression shows no significance in the effect of inflation saliency upon investment decisions. However, follow up analysis reveals significance in between-country financial literacy rates and financial behavior of the sample population. In particular, we found that participants with equally high levels of financial literacy required a significantly increased rate of return for a bond in Argentina than they did in Chile.
Our findings illustrate the need to better understand the effect of macro-economic factors upon financial decision-making. In addition to programs that improve the financial literacy of citizens, economic policies that stabilize and strengthen the domestic market should be implemented. Such actions will provide safer investment vehicles that could then motivate “savvy” financial behavior.