Explaining Why so Many People Do Not Save
Center for Retirement Research Working Paper No. 2001-05
43 Pages Posted: 4 Oct 2001
Date Written: September 2001
There are vast differences in wealth holdings, even among households in similar age groups. In addition, a large percentage of U.S. households arrive close to retirement with little or no wealth. While many explanations can be found to rationalize these facts, approximately thirty percent of households whose head is close to retirement have done little or no planning for retirement.
Planning is shaped by the experience of other individuals: individuals learn to plan for retirement from older siblings. They also learn from the experience of old parents. In particular, unpleasant events, such as financial difficulties and health shocks at the end of life, provide incentives toward planning. In addition, planning affects wealth levels as well as portfolio choice. Individuals who plan are more likely to hold large amounts of wealth and to invest their wealth holdings in high return assets, such as stocks. Thus, planning plays an important role in explaining the saving behavior of many households.
Keywords: Planning, siblings, wealth and portfolio choice
JEL Classification: D91, E21, C21
Suggested Citation: Suggested Citation