Wealth decumulation, portfolio composition and financial literacy among European elderly

Agnese Romiti () and Mariacristina Rossi

No 375, Carlo Alberto Notebooks from Collegio Carlo Alberto

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.

Keywords: Financial literacy; savings; wealth decumulation; housing; portfolio (search for similar items in EconPapers)
JEL-codes: D14 D91 G11 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2014
New Economics Papers: this item is included in nep-age and nep-eur
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:375

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