Housing wealth decumulation, portfolio composition and financial literacy among the European elderly
AbstractThis paper analyses the role played by financial literacy in savings decisions and wealth decumulation. The broad evidence shows that (elderly) households do not decumulate their assets as they age, contradicting the standard life-cycle theory, which predicts that households should decumulate their assets in order to keep their consumption smooth. In particular, older people seem to be very attached to illiquid assets, such as housing wealth, which is far more difficult to liquidate and use to face unexpected shocks and to smooth consumption. Using the SHARE (Survey of Health, Ageing, and Retirement in Europe) survey, we try to detect whether more financial literacy brings about more optimal behaviour from a life-cycle perspective, and we look at the impact of financial literacy on three different dimensions of savings decisions: an unbalanced portfolio with excessive weight assigned to illiquid assets, the optimal consumption path, and housing wealth decumulation. According to our findings, financial literacy substantially reduces the portfolio imbalance of people aged 50+ by reducing the weight of housing wealth over total net worth; at the same time, it is responsible for a more optimal consumption path and for housing wealth decumulation.
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Bibliographic InfoPaper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 289.
Length: 31 pages
Date of creation: 2012
Date of revision:
Financial literacy; savings; wealth decumulation; housing; portfolio;
Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-AGE-2013-04-20 (Economics of Ageing)
- NEP-ALL-2013-04-20 (All new papers)
- NEP-EUR-2013-04-20 (Microeconomic European Issues)
- NEP-URE-2013-04-20 (Urban & Real Estate Economics)
You can help add them by filling out this form.
Blog mentionsAs found by EconAcademics.org, the blog aggregator for Economics research:
- The elderly are not decumulating their wealth fast enough
by Economic Logician in Economic Logic on 2013-05-02 14:11:00
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