Financial Risk Taking and Differential Bargaining Power Within the Household (original) (raw)

Joint and Individual Savings within Families: Evidence from Bank Accounts

Journal of family and economic issues, 2021

In this paper, we investigate the ownership of financial assets within families and how pooling affects the individual savings of the partners. We use anonymised monthly transactional data from ING Bank to observe the financial data of Dutch couples for 2014-2016. We find that savings are quite equally allocated in almost half of households but in one-fifth of households there is only one partner who owns an individual account. The estimations show that joint savings contribute to a more equal division of savings since they are held equally. However, we find larger differences in individual savings among partners who pool, suggesting that the use of joint savings does not lead to individual savings being more evenly distributed, but rather to the opposite. The pattern is more apparent for households in their 20s and for saving accounts. The results of the study highlight the need to understand how families make decisions about applying the sharing rule to joint and individual savings.

Risk Attitude and Portfolio Choice: An Intra-household PerspectiveWe are grateful to seminar participants at the University of Essex and University of Cambridge for helpful comments

2019

Using the Household, Income and Labour Dynamics in Australia (HILDA) data, we document that the households whose financial decision-makers are husbands are more attached to the financial market than those whose decisionmakers are wives. To explain this fact, we develop a simple intra-household bargaining model of household portfolio choice, in which the couple first collectively decides the household risk preference, which, in turn, determines their portfolio allocations. The bargaining power of each spouse depends on a wide range of economic and non-economic characteristics. Our channel decomposition analysis shows the risk related variables (income, education, cognitive ability and financial literacy) are most important factors in explaining the gender asymmetric associations between the bargaining power and household investment decisions. Incorporating "Big-five" personality traits in the bargaining equation reduces the household risk taking preference and therefore lea...

Household Bargaining and Portfolio Choice

2008

Differences in risk preferences may lead to spouses having different preferences over the allocation of their household portfolio. This paper examines how their problem is resolved using a simple collective model of household portfolio choice. The model predicts that the risk aversion of the spouse with more bargaining power determines household portfolio allocation. The model also predicts that the share of risky assets in the household portfolio increases with wealth. Empirical support for the results is found using data from the Health and Retirement Study (HRS).

The Saving Behaviour of Two Person Households: Evidence from Dutch Panel Data

2000

As wives generally are younger than their husbands, and as they also have a higher life expectancy, wives generally have larger incentives to save for old age than their husbands. This paper analyses the household members’ attitudes towards saving for old age, and the relation with the household saving and portfolio choice behaviour. Based on a panel of two-person households (e.g. with a husband and a wife) from the Dutch CentER Savings Survey, we find that wives find saving for old age more important than their husbands. In a special high-income subsample we find that for this group the household members find saving for old age equally important. The major determinant of both household members’ attitudes is the husband’s mandatory pension rights. Both household members’ attitude relate to the probability of holding annuity and endowment insurances, while only the husband’s attitude relates to the probability of holding stocks. Concerning discretionary household wealth we find evide...

For Better or Worse: Financial Decision-Making Behavior of Married Couples?

SSRN Electronic Journal, 2000

This study constructs a theoretical model of household bargaining to explain the financial decision-making behavior of married couples. We empirically test our model using data from the 2000 Health and Retirement Study (HRS). The HRS is unique among national data sets in that it identifies the primary decision-maker and the more financially knowledgeable spouse. It also includes detailed information on the individual retirement accounts (IRAs) of both the husband and the wife. Using this information, we estimate a series of regression models to investigate how decision making and bargaining power affect whether a couple owns an IRA, how much they invest in it, and whether they allocate it to mostly stocks. In general, the results show that, when the husband has more decision-making power than the wife or the decision-making power is about equal, the couple is more likely to own an IRA and to have a larger amount invested in an IRA. Furthermore, the account is more likely to be allocated to mostly stocks when the husband is the financially knowledgeable spouse. Traditional measures of bargaining power also were significant in all of our models, even after we controlled for decision making. The findings have important implications for educators and financial practitioners and provide insight into the importance of having both the husband and wife actively involved in making financial decisions.

The Gender Gap in Household Bargaining Power: A Revealed-Preference Approach

SSRN Electronic Journal

We quantify how bargaining power is distributed when spouses make financial decisions together. We build a model in which each spouse has a risk preference and must bargain with each other to make asset decisions for the household. By structurally estimating the model with longitudinal data from Australian households, we show that the average household's asset allocation reflects the husband's risk preference 44% more than the wife's. This gap in bargaining power is partially explained by gender differences in income and employment status, but is also due to gender effects. We provide further evidence that links the distribution of bargaining power to views on gender norms in the cross-section.

Family Financial Risk Taking When the Wife Earns More

Journal of Family and Economic Issues, 2008

This study investigates whether the relative bargaining power of spouses plays a role in explaining household financial risk taking. Traditional models assume that household decisions are made based on pooled resources and common preferences. In contrast, bargaining models hypothesize that household decisions depend on the relative bargaining power of spouses. According to bargaining models, if women are more risk averse, then households should exhibit less financial risk taking as the bargaining power of the wife increases. Results of an analysis of household financial risk taking in a sample of dual-earner, married households from the 2004 Survey of Consumer Finances are more consistent with decision making based on pooled resources rather than on the relative bargaining power of spouses. Keywords Bargaining theory Á Dual earners Á Financial risk taking Á Household decision making According to traditional economic theory, decision making within the family is based on common preferences of family members and pooled household resources, regardless of the source of these resources. In contrast, bargaining models posit that the outcomes of household decision making depend on the relative bargaining power of household members. In this scenario wives with earnings greater than their husbands' earnings are hypothesized to have greater power in household bargaining, including financial decision making. In the United States, 25% of the wives in dual-earner households earned more than

The Game of Love and Hazard: A Structural Model of Consumption and Saving

2004

In the present paper, we consider a two-person household and study the risk that results from the stochastic fluctuations in the bargaining power of the household members. The model is inspired from the bargaining theory developed by Rubinstein and Binmore. We obtain the following results. i) The level of household investments in assets tends to increase in presence of this specific form of risk. ii) Spouses choose to invest funds in assets that have the largest negative effect on the variance of bargaining power. iii) Consumption inequality among spouses is lower in the richest couples.

Who is banked in low income families? The effects of gender and bargaining power

2011

We use data from the U.S. Survey of Consumer Finances and a framework that accounts for intrahousehold dynamics to examine bank account ownership for low-income couples. We find that even among families who are banked, some family members are not. Those without accounts may lack access to financial services, be at a disadvantage within their families, or face financial risks if their partnerships end. Our results indicate that men and women are equally likely to be banked, but the factors predicting whether or not they have accounts differ. Women with more bargaining power are more likely to hold bank accounts and their families are more likely to be banked. Moreover, individual characteristics of male and the female partners have different effects on the chances that they, their partners, or their families are banked.