Showing papers by "Annamaria Lusardi published in 2003"

Liquidity Constraints, Household Wealth and Entrepreneurship

Abstract: Using data from the Panel Study of Income Dynamics (PSID), we show that the propensity to become a business owner in the United States is a non-linear function of wealth. The relationship between wealth and entry into entrepreneurship is essentially flat over the majority of the wealth distribution. It is only at the top of the wealth distribution - after the 95th percentile - that a positive relationship can be found. Segmenting businesses into industries with high and low starting capital requirements, we find no evidence that wealth matters more for businesses requiring higher initial capital. We exploit the regional variation in house prices as an instrument for liquidity. Households who lived in regions where housing prices appreciated strongly were no more likely to start a business than households in other regions. We conclude that, while liquidity constraints may be important for some households, they are not a deterrent to the majority of small business formation in the United States.

Saving: A Cross-National Perspective

Abstract: Publisher Summary This chapter analyzes household saving in four European countries—Germany, Italy, the Netherlands, and the United Kingdom—and in Japan and the United States. The main focus of the “International Savings Comparison Project,” which was completed under the auspices of a European Union–sponsored network of researchers, was the interaction of household saving with public policy—notably, the generosity of public pension systems. Italy has the most generous social-security system, which is essentially pay-as-you-go. It has both a very early retirement age and a rather high replacement rate. In the United Kingdom, the situation is complicated because the long string of pension reforms has generated large differences across cohorts. The need to fill income gaps after retirement with private pensions is much larger in the United States and the United Kingdom than in Italy and Germany because the United States and the United Kingdom have much lower public-pension replacement rates than Italy and Germany. Netherlands provides only a flat base pension on a pay-as-you-go basis with a replacement rate, which is very low for households above the median income.

The Impact of Financial Education on Savings and Asset Allocation

Abstract: The responsibility to save and contribute to a pension is increasingly left to the individual worker. Understanding how households save and prepare for retirement is of paramount importance. There is concern in the U.S. that many families have little or no wealth even close to retirement. In this project, I use data from the Health and Retirement Study (HRS), a nationally representative sample of the cohort born between 1931 to 1941, to examine the financial situation of older households and their retirement plans. I first show that many families have not thought about retirement even though they are a few years away from retirement and the event is imminent. This finding confirms the results of other surveys, such as the Retirement Confidence Survey, that show that a large majority of workers have not made any plans for retirement.

Wealth Accumulation and the Importance of Precautionary Savings 1

Abstract: In this paper, we rely on a direct question about precautionary wealth from the 1995 and 1998 Survey of Consumer Finances to assess the importance of the precautionary saving motive. In this survey, a new question has been designed to elicit the amount of desired precautionary savings. This allows us to bound the amount of precautionary accumulation and to overcome many of the problems of previous works on this topic. We find that a precautionary saving motive exists and affects almost every type of household. This motive is particularly important for two groups: older households and business owners, but it also affects young and middle-age households who do not have businesses. Overall, we provide strong evidence that we need to take the precautionary saving motive into account when modeling saving behavior.

The Impact of Financial Education on Savings and Asset

Abstract: The responsibility to save and contribute to a pension is increasingly left to the individual worker. Understanding how households save and prepare for retirement is of paramount importance. There is concern in the U.S. that many families have little or no wealth even close to retirement. In this project, I use data from the Health and Retirement Study (HRS), a nationally representative sample of the cohort born between 1931 to 1941, to examine the financial situation of older households and their retirement plans. I first show that many families have not thought about retirement even though they are a few years away from retirement and the event is imminent. This finding confirms the results of other surveys, such as the Retirement Confidence Survey, that show that a large majority of workers have not made any plans for retirement.

Pension accounting & personal saving

Abstract: In the past two decades, the personal saving rate in the United States has declined dramatically, from 10.6 percent of disposable personal income in 1984 to a low of 2.3 percent in 2001, before bouncing back to 3.9 percent in 2002 (U.S. Department of Commerce, 2003). There is considerable debate over the reasons for this decline in the personal saving rate, as calculated by the National Income and Product Accounts (NIPA), as well as its usefulness as an indicator of saving. Many observers have questioned the influence of stock market wealth on conventionally measured personal saving rates and have noted three major ways in which the stock market and saving may be linked. One way in which the stock market can affect personal saving, which is the focus of this brief, has to do with the treatment of pension plans in the NIPA. We show that dramatic swings in asset markets have perverse effects on the personal saving rate. Indeed, according to the official NIPA accounting rules, the entire retirement saving sector contributed nothing to measured personal saving between 1996 and 2000. The analysis discussed in this piece covers the years 1988-2000, a time when the stock market was booming and personal saving rates were dropping. While the conditions have reversed with the onset of the bear market in 2000, understanding the experience of the 1990s offers key insights into what is happening today.