Home Equity Use and the Life Cycle Hypothesis

Helen Jensen

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: The life cycle hypothesis of consumption assumes the household to take a life-time perspective on all resources available for consumption, and to use the assets accumulated during the life-time to fund later consumption. Typically, households in the middle, high earning years, are able to save; younger and older households borrow or dissave. For many, a large share of accumulated household assets reside in home equity. This paper analyzes the propensity to use home equity to fund current consumption using a legit analysis of homeowners. The results support earlier criticism of the life cycle hypothesis in finding that older households do not rely on dissaving from assets. Older homeowners are less likely to use home equity to fund current consumption than others. Both sociodemographic determinants of life cycle changes as well as income variables are significant determinants of willingness to use home equity. Liquidity considerations appear to be less important.

Date: 1985-07-01
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Published in Journal of Consumer Affairs, Summer 1985, vol. 19, pp. 37-57

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:11234

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