Abstract
Understanding the motives that underlie Spaniards’ retirement saving decisions is important because many, if not most, future retirees will need to rely on personal savings to maintain a decent standard of living. The governor of the Bank of Spain has stated recently that the current public pension system will not guarantee an adequate pension to the citizens, advising to save now for retirement. In this debate on public pensions, and the complementary role that private pensions might play in Spain, this article has shed light on the decision of Spanish households to engage in individual pension plans and it has identified which factors determine the total amount saved in such retirement plans. Using micro data from the Bank of Spain (Survey of Household Finances 2011), the analysis has revealed that the expectations of lower future income, along with preferences for the financial risk and education, exert an important influence on the likelihood of enrolling in a private pension plan. University education minimizes the myopic behavior of households in the sense of making them more forward-looking and cautious in the face of their future well-being. Additionally using Heckman’s methodology to correct for the problem of selection bias, our results have revealed that liquidity constraints affect negatively the total amount of money saved for retirement.
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Notes
The total number of households in the sample of the EFF-2011 of 6106.
For the selection of variables, and in order to avoid multicollinearity, we used the command post estat vif available in Stata. With this command, it is proved that the final model has no multicollinearity and it was verified that, for example, age and age squared cannot be entered in the model as continuous variables along with the other variables finally selected because of multicollinearity.
An odds ratio greater than one tells us that an explanatory variable increases the probability of having a pension plan. And an odds ratio between 0 and 1 reduces probability.
Although logit and probit models are often used interchangeably in applied research to explain qualitative dichotomous variables, this study opted to use the logit model, being based on utility models (and easy interpretation of the odds ratio), as discussed in the second section. However, Heckman methodology demands to correct the sample selection estimating a probit.
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Moreno-Herrero, D., Salas-Velasco, M. & Sánchez-Campillo, J. Individual Pension Plans in Spain: How Expected Change in Future Income and Liquidity Constraints Shape the Behavior of Households. J Fam Econ Iss 38, 596–613 (2017). https://doi.org/10.1007/s10834-017-9526-7
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DOI: https://doi.org/10.1007/s10834-017-9526-7