Analysis of the transformation of demand willingness for housing reverse mortgages in China based on a scenario simulation experiment

Abstract

As the population rapidly ages, Housing Reverse Mortgages (HRMs) have emerged as a valuable addition to the multilevel pension insurance system, helping to alleviate the pressure on pension financing. However, the HRM market in China faces challenges due to the limited financial literacy among middle-aged and elderly residents; there is a “cognitive bias” toward understanding the mechanisms and benefits of HRMs leading to “insufficient effective demand.” This study empirically investigates the likelihood of changing the “demand willingness” for an HRM through a scenario-simulation experiment focused on HRM-related information disclosure. The findings include: (1) Up to 46.78% of the subjects' attitudes toward adopting HRMs shifted from “unwilling” to “willing” after receiving disclosed information, indicating that cognitive bias significantly impacts the insufficient effective demand for these housing products. The information disclosure experiment can correct the inadequate financial literacy to a certain extent, thereby significantly enhancing the potential demand willingness. (2) After the experiment, subjects with strong motives to bequeath their property to family members (referred to as “strong bequest motives”) significantly changed their willingness to adopt HRMs (“demand willingness”). This suggests that a clear, comprehensive promotional strategy can better align middle-aged and elderly residents' perceptions of the role of HRMs in protecting inheritances, reducing the impact of bequest-related considerations on their financial decisions. (3) Participants initially exhibiting lower financial literacy also demonstrated notable shifts in their demand willingness postexperiment. Access to easily understood, high-quality information appears to help older individuals recognize the potential benefits of HRMs, mitigating the negative effects of cognitive limitations on their decision-making. These findings highlight the importance of enhancing financial literacy and promoting a better understanding of HRMs among middle-aged and elderly individuals, which may effectively manage the challenges associated with an aging population and the pressures on pension financing.