Financial Planning Horizon: A Measure of Time Preference or a Situational Factor?

13 Pages Posted: 7 Dec 2014

See all articles by Eunice Hong

Eunice Hong

Korean Women’s Development Institute; Ohio State University - Consumer Sciences Department; Sungshin Women's University

Sherman D. Hanna

Ohio State University (OSU)

Date Written: December 1, 2014

Abstract

Many researchers have examined the influence of the financial planning horizon variable in the Survey of Consumer Finances and the Health and Retirement Study. The question asks respondents to choose the most important time period for saving and spending decisions. These researchers have assumed that the variable reflects the time preference of respondents. However, it is also possible that the variable reflects respondent situations. To examine whether the variable is situational or is a measure of a persistent preference, we used the 1992-2007 U.S. Survey of Consumer Finances datasets and examined the relationship between household characteristics and the financial planning horizon. After controlling for demographic and economic variables, the estimated planning horizon shows a hump shape along with age that peaks at age 43. The results suggest that the financial planning horizon variable is a situational factor rather than measuring a constant time preference.

Keywords: planning horizon, saving horizon, Survey of Consumer Finances, time preference

JEL Classification: D91, D14

Suggested Citation

Hong, Eunice and Hanna, Sherman D., Financial Planning Horizon: A Measure of Time Preference or a Situational Factor? (December 1, 2014). Journal of Financial Counseling and Planning, Vol. 25, No. 2, 2014, 184-196.. Available at SSRN: https://ssrn.com/abstract=2534537

Eunice Hong

Korean Women’s Development Institute ( email )

225 Jinheung-ro Eunpyeong-gu
Seoul, 03367
Korea, Republic of (South Korea)
82-2-3156-7139 (Phone)
82-2-3156-7276 (Fax)

Ohio State University - Consumer Sciences Department ( email )

United States

Sungshin Women's University ( email )

249-1 Dong-Dong 3-Ka Sungbuk-Ku
Seoul 136-742
Korea, Republic of (South Korea)

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

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