Banks do not create money out of thin air

a column by Pontus Rendahl and Lukas B. Freund for VOX: CEPR’s Policy Portal

In recent years, some have claimed that banks create money ‘ex nihilo’.

This column explains that banks do not create money out of thin air.

From an economic viewpoint, commercial banks create private money by transforming an illiquid asset (the borrower’s future ability to repay) into a liquid one (bank deposits); they would quickly be insolvent otherwise. In addition to bank solvency representing a constraint on private money creation, banks require access to liquid reserves in order to be able to engage in money creation.

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Economic socialization, saving and assets in European young adults

an article by Paul Webley (SOAS, University of London, UK) and Ellen K. Nyhus (University of Agder, Kristiansand, Norway) published in Economics of Education Review Volume 33 (April 2013)

Abstract

We analyse the role economic socialisation plays in the economic behavior and asset accumulation of young adults by parents using data from European young adults and teenagers.

We study the role of four distinct strands of economic socialisation (providing pocket money, jobs at home, work for others, and parental encouragement) using a Dutch sample of young adults (age 18–32, n = 392).

Results show positive links between parental encouragement and ability to control spending, saving preferences, future orientation, conscientiousness, and saving.

A sample of teenagers (age 14–15, n = 548) and their parents (256 mothers, 227 fathers) is drawn for a Norwegian study of economic socialisation. Analyses reveal a small difference in the socialisation of adolescents from poorer and less educated backgrounds: they are less likely to receive pocket money and to have part-time work but are more likely to have piggy banks and savings accounts at a younger age.

Variations in the economic socialisation by parents highlight the importance of financial education in schools.

Highlights

► We analyse the role of economic socialisation by parents using data from Dutch and Norwegian young adults and teenagers.
► Young adults who had been encouraged to save and taught to budget were more conscientious, more future oriented and better able to control spending.
► The total savings of young adults could be predicted from psychological characteristics and parental encouragement to save as an adolescent.
► Working as an adolescent was positively associated with the amount of debt, and negatively with total savings.
► The socialisation experience of those from poorer or less educated backgrounds was no worse than that of those from more affluent backgrounds.

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