Saving Motivations and Consumer Behavior

Previous research has shown that Dutch people tend to hold on to their (otherwise disposable) assets after retirement (van Ooijen et al., 2015). The Netherlands is not unique in this, according to similar studies performed in America and Australia (Dynan et al., 2004; Asher et al., 2017). Using a life cycle model calibrated for American data, De Nardi et al. (2016) concluded that this behavior is attributable to uncertainty (healthcare costs; longer life expectancy) and a desire to leave behind an inheritance. They assumed rational individuals and did not include any behavioral economics or psychological factors in their analysis. Beyond that, it is also unclear to what extent their findings would apply in the Netherlands due to the prevalence of other institutions here.

Models that use rational agents as their basis have difficulty explaining observed saving and dissaving behavior, and much of the empirical evidence points to the important role that behavioral economic or psychological factors play. In light of these, individuals might not always make decisions in their optimal interest. This problem can be largely solved by incorporating such factors into the choice-making process. It is therefore critical to understand whether future retirees will exhibit the same sort of behavior, along with the economic and psychological motivations underlying that behavior and what role the pension system (e.g., the extent of mandatory annuitization) plays in that. After that, researchers can investigate the extent to which the government and pension funds and insurers can use legislation, choice architecture, or customization of pension products to mitigate the possible negative effects of non-rational choices for the individual.

This project builds on the earlier research of Bateman et al. (2017), which compared savings and consumption behavior in the Netherlands with that of Australia. The researchers surveyed preferences for saving/dissaving and expenditure patterns after retirement, along with the underlying saving motivations. For the Netherlands part of the study, they used data collected in December 2016 in a representative sampling of the Dutch population ages 50-65 (acquired from the CentER Panel and the LISS Panel). This revealed, among other things, that, depending on the extent of annuitization, approximately 40% of future Dutch retirees expected to hold on to their savings. The primary reason given for this was the prospect of unexpected expenses, related to for instance declining health. Other important factors were a desire to be able to continue enjoying life, as well as the ability to bequeath sufficient resources for one’s partner.

Bateman et al. (2017) only presented respondents the option of choosing from among various (higher or lower) constant consumption patterns. It is entirely possible, however, that in reality an individual might prefer a declining consumption pattern. Greater consumption expenses during the initial years of retirement would lead to less wealth later on in life. In the proposed project, we therefore supplement the Dutch data with scenarios that allow for non-constant consumption patterns. We analyze how these and the above-mentioned choices are related to individual characteristics and financial standing.

Read paper here.

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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