Family background and the decision to provide for old age: a siblings approach

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Objective. The main objective of this paper is to investigate the role of family background in the decision to buy a so-called Riester pension. Families do not only shape the way we make our financial decisions through genetic and social factors, they can also be a source for cost-effective and reliable information. More specifically, in the Riester context, narrow sub-groups might be of special importance as long as scepticism towards Riester products is high. Methodology. The first part of the paper relates the key features of the Riester legislation to the existing literature on the influence of families in financial decision-making. Based on this, three main hypotheses are developed. In order to test these hypotheses empirically, I construct a sample consisting of siblings who are matched by the identification number of their mother, using data from the SOEP. The second part of the paper investigates if there is an association between family characteristics and Riester ownership by subtracting a family-fixed effect and through the inclusion of proxy variables, capturing the level of financial sophistication of parents and siblings. Adding a dynamic element to the analysis, a discrete-time hazard model is estimated which considers sequential correlations in Riester ownership between siblings over time. Main findings. Individuals with low education and low income seem to find it difficult to make use of the Riester subsidies. Furthermore, family financial sophistication, proxied by parental education as well as ownership of private pensions in the family, has an influence on the decision to take up a Riester pension. The hazard of subscribing to such a pension significantly increased over time, with a steep increase after 2005 when simplifications to eligibility rules and product design were introduced. Sequential correlations in Riester ownership among siblings become weaker over time, which might suggest that the family as a source of cost-effective and reliable information becomes less important as the number of Riester owners in other social circles grows. Results from this project have been published in Empirica.

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