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Wealth decumulation, portfolio composition and financial literacy among European elderly

Author

Listed:
  • Agnese Romiti
  • Mariacristina Rossi
Abstract
This 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 in case of unexpected shocks and for consumption smoothing. 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. 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 wealth decumulation. According to our findings, higher financial literacy substantially reduces the portfolio imbalance of people aged 50+ by reducing the weight of housing wealth over total net worth. In addition, higher financial literacy is responsible for a more optimal consumption path and, in particular for men, for both net worth and housing wealth decumulation.

Suggested Citation

  • Agnese Romiti & Mariacristina Rossi, 2014. "Wealth decumulation, portfolio composition and financial literacy among European elderly," Carlo Alberto Notebooks 375, Collegio Carlo Alberto.
    • Handle: RePEc:cca:wpaper:375
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    References listed on IDEAS

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    Cited by:

    1. Charles Yuji Horioka & Luigi Ventura, 2024. "Do the Retired Elderly in Europe Decumulate Their Wealth? The Importance of Bequest Motives, Precautionary Saving, Public Pensions, and Homeownership," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 70(1), pages 187-212, March.
    2. Iskandar MUDA, 2017. "User Impact of Literacy on Treatment Outcomes Quality Regional Financial Information System," Management Dynamics in the Knowledge Economy, College of Management, National University of Political Studies and Public Administration, vol. 5(2), pages 307-326, June.
    3. J.-B. Bernard & L. Berthet, 2015. "French households financial wealth: which changes in 20 years?," Documents de Travail de l'Insee - INSEE Working Papers g2015-18, Institut National de la Statistique et des Etudes Economiques.

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    More about this item

    Keywords

    Financial literacy; savings; wealth decumulation; housing; portfolio;
    All these keywords.

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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