“…This saving reduction may be greater than the rise of saving in response to an increment in their current income and/or positive news about their future income (Bowman et al (). Within this literature, a sub‐strand has examined empirical evidence on the ways in which BE factors such as loss aversion influence saving behavior at the household level (Fisher and Montalto, ; Fredrickson, ).Hypothesis 1: Individuals' saving decisions react more to declines in their current level of income than to increases as regards their reference point.…”
Section: Loss Aversion In Saving Behavior: Evidence At Individual Andmentioning
Evidence is mounting that individuals do not always behave as strictly 'rational' customers of the banking sector as neoclassical models of economics would assume. Instead, scholars and policymakers are increasingly arguing that behavioral economics offers a more useful and realistic means of understanding customer behavior in the real economy. Drawing on data from the first European Central Bank harmonized household survey at the European level and Eurostat, this paper develops a multilevel model to investigate how individuals actually save. We find evidence that loss aversion bias exists in saving behavior as regards an individual's current level of income, and that evidence of this effect is also supported at the country level. We also find strong evidence that socio-demographic factors and cross-country differences influence individuals' saving behavior. We argue that behavioral approaches canand shouldbe used to understand saving behavior of individuals, and that this insight should be used towards the ongoing quest to improve future banking practice and financial reform, particularly in the aftermath of the 2008 financial crisis.
Policy Implications• Individuals' saving behavior responds more to declines than to increases in customers' current level of income. Therefore, policymakers should facilitate a framework in which losses become less salient, by prioritizing more the long-term benefits.• Findings show that loss aversion is smaller for those EU countries with a lower level of GNI per capita, such as Latvia, Hungary, Greece, Estonia, Portugal, Slovakia, and Cyprus. Incorporating evidence derived from EU countries into policy-making can help address the weaknesses associated with neoclassical approaches.• Individuals that are more educated, married and homeowners tend to save more than their counterparts. On the contrary, women, unemployed and individuals living in a large household tend to save less. Behavioral tools are especially recommended for individuals who are thought to be potentially 'vulnerable' customers.• EU countries such as Cyprus, Greece and Latvia exhibiting a smaller loss aversion are associated with negative saving rates.Financial policies which promote disclosure methods, such as targeting annual summaries, may be beneficial for customers in different EU countries to take their saving decisions.
“…This saving reduction may be greater than the rise of saving in response to an increment in their current income and/or positive news about their future income (Bowman et al (). Within this literature, a sub‐strand has examined empirical evidence on the ways in which BE factors such as loss aversion influence saving behavior at the household level (Fisher and Montalto, ; Fredrickson, ).Hypothesis 1: Individuals' saving decisions react more to declines in their current level of income than to increases as regards their reference point.…”
Section: Loss Aversion In Saving Behavior: Evidence At Individual Andmentioning
Evidence is mounting that individuals do not always behave as strictly 'rational' customers of the banking sector as neoclassical models of economics would assume. Instead, scholars and policymakers are increasingly arguing that behavioral economics offers a more useful and realistic means of understanding customer behavior in the real economy. Drawing on data from the first European Central Bank harmonized household survey at the European level and Eurostat, this paper develops a multilevel model to investigate how individuals actually save. We find evidence that loss aversion bias exists in saving behavior as regards an individual's current level of income, and that evidence of this effect is also supported at the country level. We also find strong evidence that socio-demographic factors and cross-country differences influence individuals' saving behavior. We argue that behavioral approaches canand shouldbe used to understand saving behavior of individuals, and that this insight should be used towards the ongoing quest to improve future banking practice and financial reform, particularly in the aftermath of the 2008 financial crisis.
Policy Implications• Individuals' saving behavior responds more to declines than to increases in customers' current level of income. Therefore, policymakers should facilitate a framework in which losses become less salient, by prioritizing more the long-term benefits.• Findings show that loss aversion is smaller for those EU countries with a lower level of GNI per capita, such as Latvia, Hungary, Greece, Estonia, Portugal, Slovakia, and Cyprus. Incorporating evidence derived from EU countries into policy-making can help address the weaknesses associated with neoclassical approaches.• Individuals that are more educated, married and homeowners tend to save more than their counterparts. On the contrary, women, unemployed and individuals living in a large household tend to save less. Behavioral tools are especially recommended for individuals who are thought to be potentially 'vulnerable' customers.• EU countries such as Cyprus, Greece and Latvia exhibiting a smaller loss aversion are associated with negative saving rates.Financial policies which promote disclosure methods, such as targeting annual summaries, may be beneficial for customers in different EU countries to take their saving decisions.
“…De forma específica, múltiples investigaciones han encontrado en la Teoría Prospectiva un marco de referencia para el estudio del ahorro, presentando hallazgos que indican la pertinencia de su incorporación al estudio de esta temática (Fisher Montalto, 2011).…”
Section: Antecedentes Teóricos Y Empíricosunclassified
“…Section 2 of the survey is a set of questions on retirement planning and personality traits. To test whether an individual's knowledge of retirement planning and future orientation influences retirement saving behavior we include questions relating to planning and future time perspectives from Jacobs- Lawson and Hershey (2005), time preference and planning horizon from Fisher and Montalto (2011) as well as the Dohmen et al (2011) question on risk attitude. We also include questions to elicit life expectancy beliefs, as they should have an influence in retirement planning since people who underestimate their life expectancy are more likely to retire early, save too little and not purchase longevity protection (Van Solinge and Henkens, 2009;.…”
Using an online experimental survey, we investigate the importance of rational and psychological motives for saving in retirement for soon to be retired individuals. Our experimental task uses vignettes to elicit the impact of alternative retirement income policy settings comprising combinations of regular income and wealth, and major life events such as becoming frail and/or losing a spouse. Findings indicate that people modify their savings motives where a major life event is expected and the precautionary health savings motive becomes more important if the health of a spouse is expected to deteriorate in the near future. Our experimental survey is fielded in the Netherlands and Australia to allow investigation of the importance of the prevailing institutional settings (annuitized pension wealth in the Netherlands versus flexible drawdowns in Australia). Findings suggest that norms and awareness of the potential risks faced in the actual institutional setting are more important for the ranking of savings motives than the experimental institutional setting for the retirement income provision (income through full annuitization versus flexible withdrawal). This suggests that retirees may be slow to adjust their saving motives and spending patterns following an actual policy shift from flexible drawdowns to annuitization or vice versa.
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