Saving motives and consumer behavior: ‘Don’t make freedom of choice too complicated’

How do people decide what they spend and what they save after retirement? This study among non-retired people aged 50 to 65 shows that most people make choices and have savings motives that hardly deviate from rational behavior. However, there are major differences between respondents. A substantial minority runs the risk of making choices that are bad for their prosperity in old age. Individual characteristics such as age or education appear to have hardly predictable value for these differences in choices.

In short

• Respondents were asked to give advice to an imaginary retired household based on their own preferences, in situations where assets, income and expected health differ.
• The research is therefore based on what people say they choose in imaginary situations (stated preferences); that does not always have to correspond with actual behavior.
• More than half of people recommend higher expenses up to the age of 77 and less from the age of 77, regardless of the situation of a household.
• Almost half of the respondents choose to save money for old age. Saving motives are: “enjoying life”, “need for liquidity” and “independence of others”.
• Most respondents do not adjust the preferred spending pattern in the case of poorer expected health.
• The research was limited to households with a redeemed owner-occupied home. The results may therefore not be representative of tenants or buyers with a substantial mortgage burden.

Policy recommendations
Policy based on specific groups of people seems difficult on the basis of this analysis because of the enormous heterogeneity between the respondents, which is only to a very limited extent caught in observable characteristics. It therefore seems sensible not to make the freedom of choice too large and complex and to facilitate objective financial advice.

More information can be found in the paper ‘Saving motives and consumption‘ by Johan Bonekamp and Arthur van Soest (Tilburg University) This paper is only available in Dutch.