Melissa J. Wilmarth, Kyoung Tae Kim, Robin Henager
This study explores short-term and long-term financial behaviors of military and civilian house- holds in the United States. We investigate the role of financial knowledge and financial education on financial behaviors. Using the 2018 National Financial Capability Study (NFCS), results indicated military households had higher financial knowledge scores, greater receipt of financial education, and higher financial behaviors. Multivariate analyses show that objective and subjective financial knowledge were associated positively with short-term and long-term financial behaviors of military and civilian households. Experiencing financial education was positively associated with the long- term behaviors of military households. This study provides insights for policymakers and financial practitioners.
{"title":"Exploring financial behaviors of military households","authors":"Melissa J. Wilmarth, Kyoung Tae Kim, Robin Henager","doi":"10.61190/fsr.v31i1.3193","DOIUrl":"https://doi.org/10.61190/fsr.v31i1.3193","url":null,"abstract":"\u0000 \u0000 \u0000This study explores short-term and long-term financial behaviors of military and civilian house- holds in the United States. We investigate the role of financial knowledge and financial education on financial behaviors. Using the 2018 National Financial Capability Study (NFCS), results indicated military households had higher financial knowledge scores, greater receipt of financial education, and higher financial behaviors. Multivariate analyses show that objective and subjective financial knowledge were associated positively with short-term and long-term financial behaviors of military and civilian households. Experiencing financial education was positively associated with the long- term behaviors of military households. This study provides insights for policymakers and financial practitioners. \u0000 \u0000 \u0000","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"103 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77847607","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Olivia S. Mitchell, Catherine Reilly, John A. Turner
This paper examines whether retirees would benefit from staying in their companies’ 401(k) plans after retirement, versus rolling their savings over to Individual Retirement Accounts (IRAs). Our focus is on individuals having low or moderate levels of financial literacy. We conclude that many such retirees would likely find it financially rewarding to retain their assets in their 401(k) plans. While IRAs currently offer a wider range of advice or distribution options compared with 401(k) plans, we close by pointing to legislative and technological developments that may produce better outcomes, more retirement confidence, and greater security for retirees.
{"title":"pros and cons of remaining in a 401(k) plan after retirement","authors":"Olivia S. Mitchell, Catherine Reilly, John A. Turner","doi":"10.61190/fsr.v31i1.3191","DOIUrl":"https://doi.org/10.61190/fsr.v31i1.3191","url":null,"abstract":"\u0000 \u0000 \u0000This paper examines whether retirees would benefit from staying in their companies’ 401(k) plans after retirement, versus rolling their savings over to Individual Retirement Accounts (IRAs). Our focus is on individuals having low or moderate levels of financial literacy. We conclude that many such retirees would likely find it financially rewarding to retain their assets in their 401(k) plans. While IRAs currently offer a wider range of advice or distribution options compared with 401(k) plans, we close by pointing to legislative and technological developments that may produce better outcomes, more retirement confidence, and greater security for retirees. \u0000 \u0000 \u0000","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"144 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82268343","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Life insurance is an important household risk management and financial tool. Policy lapsation has economic effects on life insurance companies, policyholders, and beneficiaries that may be detrimental when these lapses are unexpected. Prior literature examined several hypotheses of life insurance lapse focusing mainly on macroeconomic factors using aggregate data and household microeconomic factors using household-level data. We introduce and test individual cognitive ability variables in a model of the life insurance voluntary lapse decision by individual policyholders using household-level data from the Health and Retirement Study. We find that one measure of cognitive ability, in particular, numer- acy, is related to the voluntary lapse decision. While controlling for numeracy, we find evidence that those individuals with higher levels of net worth are less likely to voluntarily lapse a policy which is consistent with the emergency fund hypothesis. We introduce a new measure of liquidity shock, kids moving home, into the model and find it has a strong positive relationship with the decision to voluntar- ily lapse a policy. Consistent with life insurance demand theory, we find that those who have recently entered retirement are more likely to lapse their policy.
{"title":"Cognitive ability impact on life insurance lapsation","authors":"Barry S. Mulholland, Michael S. Finke","doi":"10.61190/fsr.v31i1.3196","DOIUrl":"https://doi.org/10.61190/fsr.v31i1.3196","url":null,"abstract":"\u0000 \u0000 \u0000Life insurance is an important household risk management and financial tool. Policy lapsation has economic effects on life insurance companies, policyholders, and beneficiaries that may be detrimental when these lapses are unexpected. Prior literature examined several hypotheses of life insurance lapse focusing mainly on macroeconomic factors using aggregate data and household microeconomic factors using household-level data. We introduce and test individual cognitive ability variables in a model of the life insurance voluntary lapse decision by individual policyholders using household-level data from the Health and Retirement Study. We find that one measure of cognitive ability, in particular, numer- acy, is related to the voluntary lapse decision. While controlling for numeracy, we find evidence that those individuals with higher levels of net worth are less likely to voluntarily lapse a policy which is consistent with the emergency fund hypothesis. We introduce a new measure of liquidity shock, kids moving home, into the model and find it has a strong positive relationship with the decision to voluntar- ily lapse a policy. Consistent with life insurance demand theory, we find that those who have recently entered retirement are more likely to lapse their policy. \u0000 \u0000 \u0000","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-09-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85297230","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This study investigates the differential roles of financial socialization within the family versus fi- nancial education at school or the workplace, using data from a representative sample of 25,000 Japanese individuals. The results indicate that different platforms may play different roles. While the adults’ short-term financial behaviors, which involve regular feedback and immediate consequences for deviation, are primarily related to their parent’s financial advising in childhood, long-term finan- cial behaviors, which require complex planning and decision-making, are primarily related to finan- cial education received at school or the workplace. The results also suggest the benefits of accumulating financial experiences and education in different stages.
{"title":"Financial teaching by parents and financial education at school or workplace","authors":"Tsung-Ming Yeh","doi":"10.61190/fsr.v30i4.3162","DOIUrl":"https://doi.org/10.61190/fsr.v30i4.3162","url":null,"abstract":"This study investigates the differential roles of financial socialization within the family versus fi- nancial education at school or the workplace, using data from a representative sample of 25,000 Japanese individuals. The results indicate that different platforms may play different roles. While the adults’ short-term financial behaviors, which involve regular feedback and immediate consequences for deviation, are primarily related to their parent’s financial advising in childhood, long-term finan- cial behaviors, which require complex planning and decision-making, are primarily related to finan- cial education received at school or the workplace. The results also suggest the benefits of accumulating financial experiences and education in different stages.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"32 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77878335","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Using data from the Panel Study of Income Dynamics, this paper broadens the analysis of retire- ment savings by examining the effects of health, children, altruism, and family of origin attributes on the decision of whether to save for retirement and on how much retirement savings are accumu- lated. The presence of children in the household generally reduces the probability of saving for retirement. Poor personal or parental health diminishes retirement savings outcomes. Altruistic behavior generally presents as complementary to retirement savings, and the evidence suggests chil- dren of mothers who saved for retirement are more likely to do the same.
{"title":"effects of health, family, and altruism on retirement savings","authors":"Brian T. Starr","doi":"10.61190/fsr.v30i4.3161","DOIUrl":"https://doi.org/10.61190/fsr.v30i4.3161","url":null,"abstract":"Using data from the Panel Study of Income Dynamics, this paper broadens the analysis of retire- ment savings by examining the effects of health, children, altruism, and family of origin attributes on the decision of whether to save for retirement and on how much retirement savings are accumu- lated. The presence of children in the household generally reduces the probability of saving for retirement. Poor personal or parental health diminishes retirement savings outcomes. Altruistic behavior generally presents as complementary to retirement savings, and the evidence suggests chil- dren of mothers who saved for retirement are more likely to do the same.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"18 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86786556","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We provide a framework to find an optimal decision for tax-efficient retirement income. By developing a model for income and capital gains tax with stock and bond investments in tax- deferred, tax-exempt, and taxable accounts, we identify three categories of retirees based on their income needs and net worth. We propose and evaluate a simple heuristic to determine the optimal retirement income strategy, quantifying a 0.5% annual return benefit. We call this benefit tax alpha and show its robustness to varying model input parameters. We also suggest approaches for large institutions or FinTech firms to improve their existing financial planning tools.
{"title":"Seeking tax alpha in retirement income","authors":"J. DiLellio, Andreas Simon","doi":"10.61190/fsr.v30i4.3160","DOIUrl":"https://doi.org/10.61190/fsr.v30i4.3160","url":null,"abstract":"We provide a framework to find an optimal decision for tax-efficient retirement income. By developing a model for income and capital gains tax with stock and bond investments in tax- deferred, tax-exempt, and taxable accounts, we identify three categories of retirees based on their income needs and net worth. We propose and evaluate a simple heuristic to determine the optimal retirement income strategy, quantifying a 0.5% annual return benefit. We call this benefit tax alpha and show its robustness to varying model input parameters. We also suggest approaches for large institutions or FinTech firms to improve their existing financial planning tools.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"59 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90659924","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What impacts the financial well-being of African Americans, compared with other ethnic groups, has been a mystery beyond basic socio-economic factors. However, when explored through the lens of homeownership and employment, two variables that have been latent due to historical racism, African Americans fare far worse than other ethnic groups. This study utilized data from the 2016 National Financial Well-Being Survey (NFWBS) including the CFP Financial Well-Being Scale, and specifically targeted middle-income African Americans. Researchers found that when efforts are made to pull themselves up by their bootstraps through long-term savings, investing, and education, African Americans only show statistical significance if they are middle-income because student loans tend to create a drag on financial well-being levels.
{"title":"Exploring differences in African-Americans’ financial well-being based on financial security factors","authors":"C. Copeland, John H. Young, Crystal R. Hudson","doi":"10.61190/fsr.v30i4.3163","DOIUrl":"https://doi.org/10.61190/fsr.v30i4.3163","url":null,"abstract":"What impacts the financial well-being of African Americans, compared with other ethnic groups, has been a mystery beyond basic socio-economic factors. However, when explored through the lens of homeownership and employment, two variables that have been latent due to historical racism, African Americans fare far worse than other ethnic groups. This study utilized data from the 2016 National Financial Well-Being Survey (NFWBS) including the CFP Financial Well-Being Scale, and specifically targeted middle-income African Americans. Researchers found that when efforts are made to pull themselves up by their bootstraps through long-term savings, investing, and education, African Americans only show statistical significance if they are middle-income because student loans tend to create a drag on financial well-being levels.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"28 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89349297","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Financial capability is critical for individuals to survive economic hardship. As the first attempt in the literature, our research explores how being technology savvy is relevant in explaining individ- uals’ short-term and long-term financial behavior. Specifically, we use the 2018 National Financial Capability Study (NFCS) to uncover the mixed roles of technology in personal financial manage- ment. Being technology savvy was consistently associated with less desired short-term financial behavior while positively related to good long-term financial behavior after controlling for individual financial constraints and other socio-economic variables. Moreover, our study demonstrates the gen- erational disparity of being technology savvy related to financial behavior.
{"title":"Financial capability across generations and technology","authors":"Abeba Mussa, Meeghan Rogers, Xu Zhang","doi":"10.61190/fsr.v30i4.3164","DOIUrl":"https://doi.org/10.61190/fsr.v30i4.3164","url":null,"abstract":"Financial capability is critical for individuals to survive economic hardship. As the first attempt in the literature, our research explores how being technology savvy is relevant in explaining individ- uals’ short-term and long-term financial behavior. Specifically, we use the 2018 National Financial Capability Study (NFCS) to uncover the mixed roles of technology in personal financial manage- ment. Being technology savvy was consistently associated with less desired short-term financial behavior while positively related to good long-term financial behavior after controlling for individual financial constraints and other socio-economic variables. Moreover, our study demonstrates the gen- erational disparity of being technology savvy related to financial behavior.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":"20 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2023-08-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90895797","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Recently, Richard Thaler was awarded a Nobel Prize for his work in developing Behavioral Economics. While much of economics assumes that people act rationally, Areily (2008), expanding on Thaler’s body of work, proves that we are not only often irrational, but we are predictably irrational. When an interviewer asked Thaler how he would spend the roughly $1.1 million in prize money, he responded, “This is quite a funny question.” Thaler added, “I will try to spend it as irrationally as possible.” We know that affective tags for money exist but what specifically are those affective tags? More specifically still, is one of those tags for sources of income “fun,” and if so, does that affect whether the money will be spent on fun? Classical economics would assume that satisfaction comes from the consumption of goods and services, that money is a medium of exchange, and that the source of that medium of exchange does not enter into the choice of the goods or services consumed. Thaler’s (1999) works show that people create mental accounts, indicating that the source of the money may not be as completely irrelevant as classical economics predicted. This is important because where irrational behavior is suboptimal behavior, if we can anticipate it, we can construct environments to support better choices. We find that fun sources of income are significantly more likely to be spent on fun expenditures. However, as the amount of the windfall increases, the amount spent on fun levels off, indicating that this affect may be bounded. We were unable to find statistically significant support that more “adult” sources of income are more likely to be spent on more adult uses, but money from adult sources was significantly more likely to be invested. This is important because understanding more about affective tags and how they affect decisions to use money, we become better predictors of irrational behavior.
{"title":"Are “fun” sources of windfalls destined to be spent hedonistically?","authors":"Eugene Bland, Valrie Chambers","doi":"10.61190/fsr.v28i1.3413","DOIUrl":"https://doi.org/10.61190/fsr.v28i1.3413","url":null,"abstract":"Recently, Richard Thaler was awarded a Nobel Prize for his work in developing Behavioral Economics. While much of economics assumes that people act rationally, Areily (2008), expanding on Thaler’s body of work, proves that we are not only often irrational, but we are predictably irrational. When an interviewer asked Thaler how he would spend the roughly $1.1 million in prize money, he responded, “This is quite a funny question.” Thaler added, “I will try to spend it as irrationally as possible.” We know that affective tags for money exist but what specifically are those affective tags? More specifically still, is one of those tags for sources of income “fun,” and if so, does that affect whether the money will be spent on fun? Classical economics would assume that satisfaction comes from the consumption of goods and services, that money is a medium of exchange, and that the source of that medium of exchange does not enter into the choice of the goods or services consumed. Thaler’s (1999) works show that people create mental accounts, indicating that the source of the money may not be as completely irrelevant as classical economics predicted. This is important because where irrational behavior is suboptimal behavior, if we can anticipate it, we can construct environments to support better choices. We find that fun sources of income are significantly more likely to be spent on fun expenditures. However, as the amount of the windfall increases, the amount spent on fun levels off, indicating that this affect may be bounded. We were unable to find statistically significant support that more “adult” sources of income are more likely to be spent on more adult uses, but money from adult sources was significantly more likely to be invested. This is important because understanding more about affective tags and how they affect decisions to use money, we become better predictors of irrational behavior.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":" 10","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141219951","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Utilizing independent Morningstar Stewardship Grades, this article finds that multiple share class mutual funds (MS funds) have lower quality governance. Ordered probit regressions indicate MS funds are more likely to have lower board quality ratings and managerial incentive ratings, additional evidence the MS structure has not provided the benefits initially put forth by supporters. The results continue to demonstrate that less sophisticated investors seeking financial advice (those typically utilizing MS funds) may potentially be directed to funds that underperform and have higher costs.
本文利用独立的晨星管理评级（Morningstar Stewardship Grades）发现，多份额共同基金（MS 基金）的治理质量较低。有序 probit 回归表明，MS 基金的董事会质量评级和管理者激励评级更有可能较低，这进一步证明了 MS 结构并未带来支持者最初提出的好处。研究结果继续表明，寻求财务咨询的不太成熟的投资者（通常使用 MS 基金的投资者）可能会被引导到业绩不佳、成本较高的基金。
{"title":"Are multiple share class funds poorly governed?","authors":"Jonathan Handy, Tom Smythe","doi":"10.61190/fsr.v28i1.3415","DOIUrl":"https://doi.org/10.61190/fsr.v28i1.3415","url":null,"abstract":"Utilizing independent Morningstar Stewardship Grades, this article finds that multiple share class mutual funds (MS funds) have lower quality governance. Ordered probit regressions indicate MS funds are more likely to have lower board quality ratings and managerial incentive ratings, additional evidence the MS structure has not provided the benefits initially put forth by supporters. The results continue to demonstrate that less sophisticated investors seeking financial advice (those typically utilizing MS funds) may potentially be directed to funds that underperform and have higher costs.","PeriodicalId":100530,"journal":{"name":"Financial Services Review","volume":" 5","pages":""},"PeriodicalIF":0.0,"publicationDate":"2020-03-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141220179","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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