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Locus of Control and Savings

  • Deborah A. Cobb-Clark

    ()

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and IZA, Bonn)

  • Sonja C. Kassenboehmer

    (Melbourne Institute of Applied Economic and Social Research, The University of Melbourne; and IZA, Bonn)

  • Mathias G. Sinning

    (Research School of Economics, College of Business and Economics, The Australian National University; RWI, Essen; and IZA, Bonn)

This paper analyzes the relationship between individuals’ locus of control and their savings behavior, i.e. wealth accumulation, savings rates, and portfolio choices. Locus of control is a psychological concept that captures individuals’ beliefs about the controllability of life events and is a key component of self-control. We find that households with an internal reference person save more both in terms of levels and as a percentage of their permanent incomes. Although the locus-of-control gap in savings rates is largest among rich households, the gap in wealth accumulation is particularly large for poor households. Finally, households with an internal reference person and average net worth hold significantly less financial wealth, but significantly more pension wealth, than otherwise similar households with an external reference person.

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Paper provided by Melbourne Institute of Applied Economic and Social Research, The University of Melbourne in its series Melbourne Institute Working Paper Series with number wp2013n42.

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Length: 48pp
Date of creation: Dec 2013
Handle: RePEc:iae:iaewps:wp2013n42
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