Financial Sophistication and Housing Leverage Among Older Households

Smith, Hyrum L.; Finke, Michael; Huston, Sandra J.

doi:10.1007/s10834-012-9293-4

Cited by 20 publications

(11 citation statements)

References 37 publications

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“…For example, households investing in productive assets might be more financially sophisticated which has other important benefits for maintaining asset wealth beyond acquisition of the productive assets (Smith et al 2012). Additionally, more patient households might be better at saving and rely less on debt.…”

Section: Discussionmentioning

confidence: 99%

Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry After an Exit

Leonard

2013

J Fam Econ Iss

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This paper analyzed the influence of financial behaviors on the duration out of asset poverty while controlling for households' life cycle and demographic characteristics. We found evidence for the existence of structural barriers to asset acquisition. Asset accumulation at or above levels equal to nine-months worth of income at the incomepoverty level was important for improving a household's odds of permanently escaping asset poverty, but a linear relationship between asset accumulation and the likelihood of returning to asset poverty did not emerge. Moreover, minimizing debt and diversifying the asset portfolio to include more productive assets were positively related to maintaining assets; but households should also consider the risks associated with portfolio allocations.

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Section: Discussionmentioning

confidence: 99%

Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry After an Exit

Leonard

2013

J Fam Econ Iss

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“…Previous studies have used indexes and factor analysis to measure investor/financial sophistication (Huston et al. , 2012; Smith et al. , 2012; Lusardi et al.…”

Section: Methodsmentioning

confidence: 99%

“…Previous studies have used indexes and factor analysis to measure investor/financial sophistication (Huston et al, 2012;Smith et al, 2012;Guillemette et al, 2015). However, following Woodyard and Robb (2016) and Allgood and Walstad (2013), the current study created four mutually exclusive categories from objective and subjective investment knowledge to represent investor sophistication.…”

Section: Main Explanatory Variablementioning

confidence: 99%

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

Korankye

Pearson

Salehi

2022

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PurposeAlthough annuitization provides insurance against longevity risk that can benefit households, researchers have uncovered an annuitization puzzle, which suggests households are reluctant to annuitize their wealth. This study contributes to the discussions on the annuitization puzzle by examining investor sophistication and owning annuities in non-retirement accounts.Design/methodology/approachThe study utilizes data from the 2018 U S National Financial Capability Study (NFCS). The empirical analyses are based on logistic regression estimates of annuity ownership on investor sophistication. Interpretations are based on odds ratios.FindingsThe findings indicate that investor sophistication contributes to the annuity puzzle. Investors with low objective and high subjective investment knowledge (overconfident investors) are more likely to own annuities compared to those with low objective and low subjective investment knowledge. However, investors with high objective and low subjective investment knowledge (under-confident investors) are less likely to choose annuity ownership compared to those with low objective and low subjective investment knowledge. The findings and ensuing discussion highlight the importance of annuitization when planning for retirement, with implications for financial service professionals.Research limitations/implicationsThe measure of investor sophistication does not assess the difficulty level of each financial knowledge question. The questions used to construct the investor sophistication variable are based on general investment knowledge. In addition, the annuity ownership variable used in this study pertains to investments outside retirement accounts. Despite these limitations, the findings highlight the importance of annuitization when planning for retirement.Originality/valueUnlike prior studies, the authors consider four mutually exclusive measures of investor sophistication constructed from measures of objective and subjective investment knowledge to understand the effect of investor sophistication on annuity ownership in the United States.

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“…We include Information search as the existing literature finds that information availability and search costs are a significant determinant of international investment (Ahearne et al, 2004). We include two measures of financial literacy (Tang and Baker, 2016) as a proxy for financial sophistication and ability to process financial data (Smith et al, 2012).…”

Section: Empirical Modelsmentioning

confidence: 99%

Familiarity bias in direct stock investment by individual investors

Lei,

Mathers

2023

RBF

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PurposeThis study examines the relationship between investors' familiarity bias, including the home bias and endowment bias, and their financial situations, expectations and personal characteristics.Design/methodology/approachUsing the 2019 Survey of Consumer Finances, the authors utilize an ordinary least squares regression to identify the presence of endowment bias and home bias in individual investors' direct stock holdings and use a Heckman selection model to examine determinants of the extent of endowment bias and home bias.FindingsThis study finds that investors with higher income and more education, men, non-white investors and people with greater risk tolerance are actually at a greater risk of endowment bias. This study also identifies a profile of investors that are more likely to have a home bias: with less financial sophistication, lower net worth, older, female, more risk-averse, with a positive expectation about the domestic economy and a relatively shorter investment horizon.Originality/valueThis paper is among the first to use US investors' directly reported stock holdings to examine the individual characteristics that are correlated with greater familiarity bias, providing financial professionals with information about how to allocate their limited time in providing education to a variety of clients.

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Financial Sophistication and Housing Leverage Among Older Households

Cited by 20 publications

References 37 publications

Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry After an Exit

Is Household Wealth Sustainable? An Examination of Asset Poverty Reentry After an Exit

The nexus between investor sophistication and annuity insurance ownership: evidence from FINRA's National Financial Capability Study

Familiarity bias in direct stock investment by individual investors

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