Working Paper: NBER ID: w8920
Authors: John Ameriks; Andrew Caplin; John Leahy
Abstract: Why do similar households end up with very different levels of wealth? We show that differences in the attitudes and skills with which they approach financial planning are a significant factor. We use new and unique survey data to assess these differences and to measure each household's 'propensity to plan.' We show that those with a higher such propensity spend more time developing financial plans, and that this shift in planning effort is associated with increased wealth. The propensity to plan is uncorrelated with survey measures of the discount factor and the bequest motive, raising a question as to why it is associated with wealth accumulation. Part of the answer lies in the very strong relationship we uncover between the propensity to plan and how carefully households monitor their spending. It appears that this detailed monitoring activity helps households to save more and to accumulate more wealth.
Keywords: Wealth Accumulation; Financial Planning; Behavioral Economics
JEL Codes: E2; D1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| propensity to plan (P11) | planning effort (P11) |
| planning effort (P11) | wealth accumulation (E21) |
| propensity to plan (P11) | wealth accumulation (E21) |
| monitoring spending (H61) | wealth accumulation (E21) |