Can temptation explain housing choices in later life?

We use individual life-history data on twelve European countries to investigate the role of temptation in explaining the decision to become home-owners relatively late in life. The model we consider takes into account the standard motives for saving and investing in illiquid assets such as housing and individual retirement accounts, but recognizes that illiquid assets may be used by individuals who find it hard to procrastinate current consumption to control the temptation linked to having plenty of cash on hand. The evidence we produce is consistent with the notion that tempted individuals first resort to illiquid financial assets to control temptation, but as retirement age approaches they are more likely to use home-ownership as a commitment device.

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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