Expected Bequests and Current Wealth of Older Households

We use the subjective probabilities of bequests to be given in the future and current asset holdings, as reported in three household surveys (HRS, ELSA, and SHARE) covering thirteen countries, in order to assess whether, and to what extent, households plan to decumulate assets in old age. We model intended bequests as a function of household demographic and economic characteristics, and estimate their expected value using quasi-maximum likelihood methods. By comparing the current wealth holdings with the expected intended bequests we compute the pattern of future saving by households, and assess its cross-country variability with respect to housing wealth.

Investing at Home and Abroad: Different Costs, Different People?

We investigate US households’ direct investment in stocks, bonds and liquid accounts and their foreign counterparts, in order to identify the different participation hurdles affecting asset investment domestically and overseas. To this end, we estimate a trivariate probit model with three further selection equations that allows correlations among unobservables of all possible asset choices. Our results point to the existence of a second hurdle that stock owners need to overcome in order to invest in foreign stocks. On the other hand, we find little evidence for additional pecuniary or informational costs associated with investment in foreign bonds and liquid accounts.Foreign assets, household finance, stockholding, multivariate probit, simulated maximum likelihood, selection.

Household Economic Decisions under the Shadow of Terrorism

We investigate, using the 2002 US Health and Retirement Study, the factors influencing individuals’ insecurity and expectations about terrorism, and study the effects these last have on households’ portfolio choices and spending patterns. We find that females, the religiously devout, those equipped with a better memory, the less educated, and those living close to where the events of September 2001 took place worry a lot about their safety. In addition, fear of terrorism discourages households from investing in stocks, mostly through the high levels of insecurity felt by females. Insecurity due to terrorism also makes single men less likely to own a business. Finally, we find evidence of expenditure shifting away from recreational activities that can potentially leave one exposed to a terrorist attack and towards goods that might help one cope with the consequences of terrorism materially (increased use of car and spending on the house) or psychologically (spending on personal care products by females in couples).terrorism, expectations, household finance, demand analysis

Imputation of Missing Data in Waves 1 and 2 of SHARE

The Survey of Health, Ageing and Retirement in Europe (SHARE), like all large household surveys, suffers from the problem of item non-response, and hence the need of imputation of missing values arises. In this paper I describe the imputation methodology used in the first two waves of SHARE, which is the fully conditional specification approach of van Buuren, Brand, Groothuis-Oudshoorn, and Rubin (2006). Methods for assessing the convergence of the imputation process are also discussed. Finally, I give details on numerous issues affecting the implementation of the imputation process that are particular to SHARE.Data; Multiple Imputation; Markov Chain Monte Carlo; SHARE

Wealth and Portfolio Composition

This paper provides basic statistics on household total wealth, financial assets, and financial assets composition of the elderly as key indicators of the well-being and quality of life of the elderly. Median total wealth varies much less than median financial wealth across countries. As for financial asset ownership, the chapter focuses on bonds, stocks, mutual funds and life-insurance policies and documents the polarization between Nordic and Mediterranean countries. The elderly tend to invest more in stocks and to have a more diversified portfolio in Northern and Central Europe than in the South. The chapter also offers insights about the relation between financial risk exposure and age and the time that the elderly spend managing their financial assets.

Cognitive Abilities and Portfolio Choice

We study the relation between cognitive ability and the decision to invest in stocks using the recent Survey of Health, Ageing and Retirement in Europe (SHARE). The survey has detailed data on wealth and portfolio composition of individuals aged 50+ in 11 European countries and three indicators of cognitive abilities: mathematical, verbal fluency, and recall skills. We find that the propensity to invest in stocks is strongly associated with cognitive abilities, for both direct stock market participation and indirect participation through mutual funds and investment accounts. We also find that stockholding increases with social interactions, intention to leave a bequest, and is negatively associated with health status.

Wealth Shocks, Unemployment Shocks and Consumption in the Wake of the Great Recession

We use data from the 2009 Internet Survey of the Health and Retirement Study to examine the consumption impact of wealth shocks and unemployment during the Great Recession in the US. We find that many households experienced large capital losses in housing and in their financial portfolios, and that a non-trivial fraction of respondents have lost their job. As a consequence of these shocks, many households reduced substantially their expenditures. We estimate that the marginal propensities to consume with respect to housing and financial wealth are 1 and 3.3 percentage points, respectively. In addition, those who became unemployed reduced spending by 10 percent. We also distinguish the effect of perceived transitory and permanent wealth shocks, splitting the sample between households who think that the stock market is likely to recover in a year’s time, and those who don’t. In line with the predictions of standard models of intertemporal choice, we find that the latter group adjusted much more than the former its spending in response to financial wealth shocks.Marginal Propensity to Consume; Wealth Shocks; Unemployment

Stockholding: From Participation to Location and to Participation Spillovers

This paper provides a joint analysis of household stockholding participation, stock location among stockholding modes, and participation spillovers, using data from the US Survey of Consumer Finances. Our multivariate choice model matches observed participation rates, conditional and unconditional, and asset location patterns. Financial education and sophistication strongly affect direct stockholding and mutual fund participation, while social interactions affect stockholding through retirement accounts only. Household characteristics influence stockholding through retirement accounts conditional on owning retirement accounts, unlike what happens with stockholding through mutual funds. Although stockholding is more common among retirement account owners, this fact is mainly due to their characteristics that led them to buy retirement accounts in the first place rather than of any informational advantages gained through retirement account ownership itself. Finally, our results suggest that, taking stockholding as given, stock location is not arbitrary but crucially depends on investor characteristics.Stockholding, asset location, retirement accounts, household finance, multivariate probit, simulated maximum likelihood

Early Life Conditions and Financial Risk–Taking in Older Age

Using life-history survey data from eleven European countries, we investigate whether childhood conditions, such as socioeconomic status, cognitive abilities and health problems influence portfolio choice and risk attitudes later in life. After controlling for the corresponding conditions in adulthood, we find that superior cognitive skills in childhood (especially mathematical abilities) are positively associated with stock and mutual fund ownership. Childhood socioeconomic status, as indicated by the number of rooms and by having at least some books in the house during childhood, is also positively associated with the ownership of stocks, mutual funds and individual retirement accounts, as well as with the willingness to take financial risks. On the other hand, less risky assets like bonds are not affected by early childhood conditions. We find only weak effects of childhood health problems on portfolio choice in adulthood. Finally, favorable childhood conditions affect the transition in and out of risky asset ownership, both by making divesting less likely and by facilitating investing (i.e., transitioning from non-ownership to ownership).Portfolio Choice, Childhood Socio-economic Status, Cognition, Health, Financial Risk