IDEAS home Printed from https://ideas.repec.org/p/mrr/papers/wp122.html
   My bibliography  Save this paper

Savings Between Cohorts: The Role of Planning

Author

Listed:
  • Annamaria Lusardi

    (Dartmouth College)

  • Jason Beeler

    (Mercer Oliver Wyman)

Abstract

We compare the saving behavior of two cohorts: the Early Baby Boomers (EBB, age 51-56 in 2004) and the HRS cohort (age 51-56 in 1992). We find that EBB have accumulated more wealth than the previous cohort but they benefited from a large increase in house prices, which lifted the wealth of many home-owners. In fact, there are many families among EBB, particularly those headed by respondents with low education, low income, and minorities, which have less wealth than the previous cohort. Lack of wealth can be traced to lack of retirement planning. Notwithstanding the many initiatives aimed at fostering planning in the 1990s, a large portion of EBB still do not plan for retirement even though most respondents are close to it. The effect of planning is remarkably similar between the two cohorts; those who do not plan accumulate much lower amounts of wealth - from 20 to 45 percent depending on the location in the wealth distribution- than those who do plan. Thus, for both the EBB and the HRS cohort, lack of planning is tantamount to lack of saving irrespective of the many changes in the economy between 1992 and 2004.

Suggested Citation

  • Annamaria Lusardi & Jason Beeler, 2006. "Savings Between Cohorts: The Role of Planning," Working Papers wp122, University of Michigan, Michigan Retirement Research Center.
    • Handle: RePEc:mrr:papers:wp122
    as

    Download full text from publisher

    File URL: http://mrdrc.isr.umich.edu/publications/Papers/pdf/wp122.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Kapteyn, Arie & Alessie, Rob & Lusardi, Annamaria, 2005. "Explaining the wealth holdings of different cohorts: Productivity growth and Social Security," European Economic Review, Elsevier, vol. 49(5), pages 1361-1391, July.
    2. Steven F. Venti & David A. Wise, 1990. "But They Don't Want to Reduce Housing Equity," NBER Chapters, in: Issues in the Economics of Aging, pages 13-32, National Bureau of Economic Research, Inc.
    3. Venti, Steven F. & Wise, David A., 1991. "Aging and the income value of housing wealth," Journal of Public Economics, Elsevier, vol. 44(3), pages 371-397, April.
    4. John Ameriks & Andrew Caplin & John Leahy, 2003. "Wealth Accumulation and the Propensity to Plan," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 118(3), pages 1007-1047.
    5. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    6. Erik Hurst & Annamaria Lusardi, 2004. "Liquidity Constraints, Household Wealth, and Entrepreneurship," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 319-347, April.
    7. Katz, Lawrence F. & Autor, David H., 1999. "Changes in the wage structure and earnings inequality," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 26, pages 1463-1555, Elsevier.
    8. David H. Autor & Lawrence F. Katz & Melissa S. Kearney, 2006. "The Polarization of the U.S. Labor Market," American Economic Review, American Economic Association, vol. 96(2), pages 189-194, May.
    9. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-1129, September.
    10. Mitchell, Olivia S. & Utkus, Stephen P. (ed.), 2004. "Pension Design and Structure: New Lessons from Behavioral Finance," OUP Catalogue, Oxford University Press, number 9780199273393.
    11. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    12. Steven F. Venti & David A. Wise, 2001. "Choice, Chance, and Wealth Dispersion at Retirement," NBER Chapters, in: Aging Issues in the United States and Japan, pages 25-64, National Bureau of Economic Research, Inc.
    13. William M. Gentry & R. Glenn Hubbard, 2000. "Entrepreneurship and Household Saving," NBER Working Papers 7894, National Bureau of Economic Research, Inc.
    14. Gustman, Alan L. & Steinmeier, Thomas L., 1999. "Effects of pensions on savings: analysis with data from the health and retirement study," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 271-324, June.
    15. Seiritsu Ogura & Toshiaki Tachibanaki & David A. Wise, 2001. "Aging Issues in the United States and Japan," NBER Books, National Bureau of Economic Research, Inc, number ogur01-1.
    16. Gentry William M. & Hubbard R. Glenn, 2004. "Entrepreneurship and Household Saving," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 4(1), pages 1-57, August.
    17. Alan L. Gustman & Thomas L. Steinmeier, 2002. "Retirement and the Stock Market Bubble," NBER Working Papers 9404, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    2. Anokye M. Adam, & Siaw Frimpong, & Mavis Opoku Boadu, 2017. "Financial literacy and financial planning: Implication for financial well-being of retirees," Business and Economic Horizons (BEH), Prague Development Center, vol. 13(2), pages 224-236, May.
    3. Annamaria Lusardi, 2008. "Financial Literacy: An Essential Tool for Informed Consumer Choice?," NFI Working Papers 2008-WP-13, Indiana State University, Scott College of Business, Networks Financial Institute.
    4. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Financial literacy and retirement planning: New evidence from the Rand American Life Panel," CFS Working Paper Series 2007/33, Center for Financial Studies (CFS).
    5. Maya Haran Rosen & Orly Sade, 2017. "Does Financial Regulation Unintentionally Ignore Less Privileged Populations? The Investigation of a Regulatory Fintech Advancement, Objective and Subjective Financial Literacy," Bank of Israel Working Papers 2017.10, Bank of Israel.
    6. Annamaria Lusardi, 2008. "Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs," NBER Working Papers 13824, National Bureau of Economic Research, Inc.
    7. Annamaria Lusardi, 2010. "Financial Capability in the United States: Consumer Decision-Making and the Role of Social Security," Working Papers wp226, University of Michigan, Michigan Retirement Research Center.
    8. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.
    9. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
    10. Annamaria Lusardi & Olivia Mitchell, 2006. "Financial Literacy and Retirement Preparedness: Evidence and Implications for Financial Education Programs," Working Papers wp144, University of Michigan, Michigan Retirement Research Center.
    11. Lusardi, Annamaria & Mitchell, Olivia S., 2011. "Financial literacy around the world: an overview," Journal of Pension Economics and Finance, Cambridge University Press, vol. 10(4), pages 497-508, October.
    12. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    13. Annamaria Lusardi, 2011. "Americans' Financial Capability," NBER Working Papers 17103, National Bureau of Economic Research, Inc.
    14. Adam, Anokye Mohammed & Frimpong, Siaw & Boadu, Mavis Opoku, 2017. "Financial literacy and financial planning: Implication for financial well-being of retirees," Business and Economic Horizons (BEH), Prague Development Center (PRADEC), vol. 13(2).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    2. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    3. Maarten C.J. van Rooij & Annamaria Lusardi & Rob J.M. Alessie, 2012. "Financial Literacy, Retirement Planning and Household Wealth," Economic Journal, Royal Economic Society, vol. 122(560), pages 449-478, May.
    4. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    5. Arthur Kennickell & Annamaria Lusardi, 2004. "Disentangling the Importance of the Precautionary Saving Mode," NBER Working Papers 10888, National Bureau of Economic Research, Inc.
    6. Annamaria Lusardi, 2003. "The Impact of Financial Education on Savings and Asset," Working Papers wp061, University of Michigan, Michigan Retirement Research Center.
    7. Elsa Fornero & Annamaria Lusardi & Chiara Monticone, 2009. "Adequacy of Saving for Old Age in Europe," CeRP Working Papers 87, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    8. Annamaria Lusardi, 2000. "Explaining Why So Many Households Do Not Save," Working Papers 0001, Harris School of Public Policy Studies, University of Chicago.
    9. Annamaria Lusardi, 2008. "Household Saving Behavior: The Role of Financial Literacy, Information, and Financial Education Programs," NBER Working Papers 13824, National Bureau of Economic Research, Inc.
    10. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    11. Kennickell, Arthur & Lusardi, Annamaria, 2005. "Disentangling the importance of the precautionary saving motive," CFS Working Paper Series 2006/15, Center for Financial Studies (CFS).
    12. Annamarie Lusardi & Olivia S. Mitchell, 2005. "Financial Literacy and Planning: Implications for Retirement Wellbeing," Working Papers wp108, University of Michigan, Michigan Retirement Research Center.
    13. Annamaria Lusardi & Olivia S. Mitchell, 2008. "Planning and Financial Literacy: How Do Women Fare?," American Economic Review, American Economic Association, vol. 98(2), pages 413-417, May.
    14. Hilt, Eric & Jaremski, Matthew & Rahn, Wendy, 2022. "When Uncle Sam introduced Main Street to Wall Street: Liberty Bonds and the transformation of American finance," Journal of Financial Economics, Elsevier, vol. 145(1), pages 194-216.
    15. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    16. Annamaria Lusardi & Olivia Mitchell, 2007. "Financial Literacy and Retirement Planning: New Evidence from the Rand American Life Panel," Working Papers wp157, University of Michigan, Michigan Retirement Research Center.
    17. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
    18. Todd M. Sinai & Nicholas S. Souleles, 2007. "Net worth and housing equity in retirement," Working Papers 07-33, Federal Reserve Bank of Philadelphia.
    19. Luc Arrondel, 2013. "Are “daddy’s boys” just as rich as daddy? The transmission of values between generations," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 11(4), pages 439-471, December.
    20. Annamaria Lusardi & Olivia S. Mitchell, 2017. "How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness," Quarterly Journal of Finance (QJF), World Scientific Publishing Co. Pte. Ltd., vol. 7(03), pages 1-31, September.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mrr:papers:wp122. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MRRC Administrator (email available below). General contact details of provider: https://edirc.repec.org/data/isumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.