Giving with a warm hand: bequest motive plays an important role in the saving behavior of the elderly

A final trip around the world, or leave some money to your loved ones? The authors of this study find that individuals who die from a terminal illness have much less wealth on their day of death than people who die unexpectedly. They interpret this as a strong indication that the desire to give money to loved ones – with a warm hand – plays an important role. The bequest motive seems to be an important factor to take into account when determining the adequacy of pensions now and in the future.

An important question is whether individuals who die from a terminal illness have less wealth because of medical or non-medical consumption. The authors argue that medical expenditures are unlikely to be the explanation, since out-of-pocket medical expenditures amount to less than 5% in the Netherlands. Furthermore, additional research shows that health shocks at older ages have strong negative effects on non-medical expenditures. People seem to consume less when they become sick. Therefore, non-medical consumption is unlikely to be the explanation for the main result of this study.

The authors conclude that leaving an inheritance is important for a large group of people and is a factor to take into account when determining the adequacy of pensions now and in the future. The bequest motive means that people hold on to part of their savings in order to be able to give it to their loved ones later. In the long term, measures that have an impact on the (pension) capital of Dutch households can therefore also lead to younger generations being able to rely more or less on legacies.

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The Netspar publication ‘Giving With a Warm Hand: Evidence on Estate Planning and Bequests’ by Eduard Suari-Andreu (LU), Raun van Ooijen, Rob Alessie and Viola Angelini (RUG)

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.

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