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The constraining impact mechanism of financial cognitive ability on the effective demand for housing reverse mortgages in China

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  • Han, Wei
  • Zhang, Bo
  • Li, Wei

Abstract

In the context of rapidly aging populations, Housing Reverse Mortgages (HRMs) offer a valuable supplement to the multi-tiered pension insurance system and can effectively ease the burden on pension financing. However, a widespread lack of financial cognitive ability among elderly residents often leads to cognitive biases towards the operating principles and potential benefits of HRMs, creating “insufficient effective demand” in China's HRM market. This study empirically examines how limited financial cognitive ability constrains the demand willingness to use HRM services. The findings reveal: (1) Elderly residents with higher financial cognitive ability are better able to understand and objectively evaluate the operating principles and potential value of HRMs, thus displaying a stronger willingness to utilize these services. (2) Bequest motivations and risk preferences are significant mediators through which financial cognitive abilities influence HRM demand willingness. (3) Financial education and increased social interaction among elderly residents substantially reduce the negative impact of limited financial cognitive ability on their demand willingness for HRMs.

Suggested Citation

  • Han, Wei & Zhang, Bo & Li, Wei, 2024. "The constraining impact mechanism of financial cognitive ability on the effective demand for housing reverse mortgages in China," International Review of Financial Analysis, Elsevier, vol. 95(PC).
    • Handle: RePEc:eee:finana:v:95:y:2024:i:pc:s1057521924004630
    DOI: 10.1016/j.irfa.2024.103531
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    More about this item

    Keywords

    Housing reverse mortgage (HRM); Financial cognitive ability; Bequest motivation; Risk preference; Financial education; Social interaction;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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