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Locus of Control and Savings

Author

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  • 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)

Abstract

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.

Suggested Citation

  • Deborah A. Cobb-Clark & Sonja C. Kassenboehmer & Mathias G. Sinning, 2013. "Locus of Control and Savings," Melbourne Institute Working Paper Series wp2013n42, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
  • Handle: RePEc:iae:iaewps:wp2013n42
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    Cited by:

    1. Deborah Cobb-Clark, 2015. "Locus of control and the labor market," IZA Journal of Labor Economics, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 4(1), pages 1-19, December.
    2. Buddelmeyer, Hielke & Powdthavee, Nattavudh, 2016. "Can having internal locus of control insure against negative shocks? Psychological evidence from panel data," Journal of Economic Behavior & Organization, Elsevier, vol. 122(C), pages 88-109.
    3. Preuss, Malte & Hennecke, Juliane, 2017. "Biased by success and failure: How unemployment shapes stated locus of control," Discussion Papers 2017/29, Free University Berlin, School of Business & Economics.
    4. Lekfuangfu, Warn N. & Cornaglia, Francesca & Powdthavee, Nattavudh & Warrinnier, Nele, 2014. "Locus of Control and Its Intergenerational Implications for Early Childhood Skill Formation," IZA Discussion Papers 8487, Institute for the Study of Labor (IZA).
    5. Luik, Marc-André & Steinhardt, Max Friedrich, 2016. "Immigrant-native differences in stockholding – The role of cognitive and non-cognitive skills," Journal of Empirical Finance, Elsevier, vol. 38(PA), pages 103-119.
    6. repec:spr:jhappi:v:18:y:2017:i:6:d:10.1007_s10902-016-9789-y is not listed on IDEAS
    7. repec:eee:jeborg:v:143:y:2017:i:c:p:98-115 is not listed on IDEAS
    8. repec:eee:jeborg:v:148:y:2018:i:c:p:66-82 is not listed on IDEAS
    9. Caliendo, Marco & Cobb-Clark, Deborah A. & Seitz, Helke & Uhlendorff, Arne, 2016. "Locus of Control and Investment in Training," IZA Discussion Papers 10406, Institute for the Study of Labor (IZA).
    10. Mosca, Irene & McCrory, Cathal, 2016. "Personality and wealth accumulation among older couples: Do dispositional characteristics pay dividends?," Journal of Economic Psychology, Elsevier, vol. 56(C), pages 1-19.
    11. Elkins, Rosemary & Schurer, Stefanie, 2018. "Exploring the Role of Fathers in Non-Cognitive Skill Development over the Lifecourse," IZA Discussion Papers 11451, Institute for the Study of Labor (IZA).
    12. Ayllón, Sara & Fusco, Alessio, 2017. "Are income poverty and perceptions of financial difficulties dynamically interrelated?," Journal of Economic Psychology, Elsevier, vol. 61(C), pages 103-114.
    13. Kassenboehmer, Sonja C. & Schatz, Sonja G., 2017. "Re-employment expectations and realisations: Prediction errors and behavioural responses," Labour Economics, Elsevier, vol. 44(C), pages 161-176.
    14. Rosemary Elkins & Stefanie Schurer, 2018. "Exploring the role of fathers in non-cognitive skill development over the lifecourse," Working Papers 2018-034, Human Capital and Economic Opportunity Working Group.
    15. Johnston, David W. & Kassenboehmer, Sonja C. & Shields, Michael A., 2016. "Financial decision-making in the household: Exploring the importance of survey respondent, health, cognitive ability and personality," Journal of Economic Behavior & Organization, Elsevier, vol. 132(PA), pages 42-61.
    16. repec:eee:ecmode:v:72:y:2018:i:c:p:122-131 is not listed on IDEAS
    17. Sonja C. Kassenboehmer & Sonja G. Schatz, 2014. "Re-employment Expectations and the Eye of Providence," Melbourne Institute Working Paper Series wp2014n11, Melbourne Institute of Applied Economic and Social Research, The University of Melbourne.
    18. Milena Nikolova & Boris Nikolaev, 2017. "Does Joining the EU Make You Happy? Evidence from Bulgaria and Romania," Journal of Happiness Studies, Springer, vol. 18(6), pages 1593-1623, December.
    19. Nikolaev, Boris & Bennett, Daniel L., 2016. "Give me liberty and give me control: Economic freedom, control perceptions and the paradox of choice," European Journal of Political Economy, Elsevier, vol. 45(S), pages 39-52.

    More about this item

    Keywords

    Non-cognitive skills; locus of control; wealth accumulation; asset portfolios; savings;

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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