DP11033 Household Financial Planning and Savings Behavior

Author(s): Dirk Brounen, Kees Koedijk, Rachel A J Pownall
Publication Date: December 2015
Keyword(s): consumption, intertemporal household choice, life cycle models and saving, wealth
JEL(s): D91, E21
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11033

Greater personal responsibility towards financial decision-making is being advocated on a global basis. Individuals and households are encouraged to take a more active approach to personal finance. In this paper, we examine behavioral factors, which lead households towards savings and financial planning across a panel of 1,253 Dutch households. In line with the available literature, we find that an individual?s propensity to save decreases with age and is higher among the financial literate. Moreover, we find that saving behavior varies across generations, and is significantly dominant among baby boomers. This generation effect, however, weakens once we account for more individual specifics. Our results offer evidence for parental influence, and for the effects of the psychometrics of numeracy, self-efficacy, locus of control and future orientation. A good understanding of these personality variables helps to explain why some take financial responsibility while others do not.