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Wealth Accumulation and the Propensity to Plan

  • John Ameriks
  • Andrew Caplin
  • John Leahy

Why do similar households end up with very different levels of wealth? We show that differences in the attitudes and skills with which they approach financial planning are a significant factor. We use new and unique survey data to assess these differences and to measure each household's 'propensity to plan.' We show that those with a higher such propensity spend more time developing financial plans, and that this shift in planning effort is associated with increased wealth. The propensity to plan is uncorrelated with survey measures of the discount factor and the bequest motive, raising a question as to why it is associated with wealth accumulation. Part of the answer lies in the very strong relationship we uncover between the propensity to plan and how carefully households monitor their spending. It appears that this detailed monitoring activity helps households to save more and to accumulate more wealth.

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File URL: http://www.nber.org/papers/w8920.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 8920.

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Date of creation: May 2002
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Publication status: published as Ameriks, John, Andrew Caplin and John Leahy. "Wealth Accumulation And The Propensity To Plan," Quarterly Journal of Economics, 2003, v118(3,Aug), 1007-1048.
Handle: RePEc:nbr:nberwo:8920
Note: AG EFG
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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  1. Brigitte C. Madrian & Dennis F. Shea, 2001. "THE POWER OF SUGGESTION: INERTIA IN 401(k) PARTICIPATION AND SAVINGS BEHAVIOR," The Quarterly Journal of Economics, MIT Press, vol. 116(4), pages 1149-1187, November.
  2. B. Douglas Bernheim & Daniel M. Garrett & Dean M. Maki, 1997. "Education and Saving: The Long-Term Effects of High School Financial Curriculum Mandates," NBER Working Papers 6085, National Bureau of Economic Research, Inc.
  3. John Ameriks & Andrew Caplin & John Leahy, 2007. "Retirement Consumption: Insights from a Survey," The Review of Economics and Statistics, MIT Press, vol. 89(2), pages 265-274, May.
  4. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," JCPR Working Papers 203, Northwestern University/University of Chicago Joint Center for Poverty Research.
  5. Alan L. Gustman & Thomas L. Steinmeier, 2001. "Imperfect Knowledge, Retirement and Saving," Working Papers wp012, University of Michigan, Michigan Retirement Research Center.
  6. Robert B. Barsky & Miles S. Kimball & F. Thomas Juster & Matthew D. Shapiro, 1995. "Preference Parameters and Behavioral Heterogeneity: An Experimental Approach in the Health and Retirement Survey," NBER Working Papers 5213, National Bureau of Economic Research, Inc.
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