The constraining impact mechanism of financial cognitive ability on the effective demand for housing reverse mortgages in China

Wei Han, Bo Zhang and Wei Li

International Review of Financial Analysis, 2024, vol. 95, issue PC

Abstract: In the context of rapidly aging populations, Housing Reverse Mortgages (HRMs) offer a valuable supplement to the multi-tiered pension insurance system and can effectively ease the burden on pension financing. However, a widespread lack of financial cognitive ability among elderly residents often leads to cognitive biases towards the operating principles and potential benefits of HRMs, creating “insufficient effective demand” in China's HRM market. This study empirically examines how limited financial cognitive ability constrains the demand willingness to use HRM services. The findings reveal: (1) Elderly residents with higher financial cognitive ability are better able to understand and objectively evaluate the operating principles and potential value of HRMs, thus displaying a stronger willingness to utilize these services. (2) Bequest motivations and risk preferences are significant mediators through which financial cognitive abilities influence HRM demand willingness. (3) Financial education and increased social interaction among elderly residents substantially reduce the negative impact of limited financial cognitive ability on their demand willingness for HRMs.

Keywords: Housing reverse mortgage (HRM); Financial cognitive ability; Bequest motivation; Risk preference; Financial education; Social interaction (search for similar items in EconPapers)
JEL-codes: C58 D14 G41 H55 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004630

DOI: 10.1016/j.irfa.2024.103531

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