My observation as an accountant in the past was that individuals engage with money differently, especially for planning for their future. Most individuals paid attention to the pensions or tax policy changes; yet, their behavioural responses varied greatly. They offered interpretations of their immediate and broader socio-economic circumstances differed, and justified their preferences and decisions differently, arriving at a different shape of asset accumulation over the years. My question was, what makes them so different? This PhD research is built on this curious observation. Using retirement saving as a measure of long-term financial planning, this research focuses on examining how young British adults plan for their future financially. Being ‘young’ in this study is interpreted broadly and refer to those in the early stages of life, in which partnership and family formations take place.
Recent pension policy changes in the UK imply that individuals’ active retirement saving has become far more critical. Also, as many of existing saving vehicles, such as workplace saving schemes, moving from entitlement-based to accumulation-based, the distinction between wealth accumulation and retirement saving has become less clear-cut. Due to this shift in the policy structure, there is an increasing need to understand firstly, the role of human agency in the saving decision-making process and secondly, the patterns of wealth accumulation at the beginning stages of the life course. In terms of research methods, these questions also present interesting analytical challenges, as most studies in policy literature have employed qualitative methods. This study aims to contribute to this.
There are three quantitative studies in this thesis. The first paper builds on the need for a more active retirement saving among the younger population. The saving activity here signifies saving via means other than automatically occurring saving schemes, which is considered as a behavioural outcome of an interaction between individuals attitudinal and socio-economic factors including social origin. The process of decision making is modelled based on Hershey and colleagues’ model of financial planning (2007), with minor modifications to account for behavioural tendencies in money management and to reflect the economic circumstances of young British adults more realistically. Structural Equation Modelling (SEM) is used. In the measurement model, qualities that are not directly observables are modelled, such as individuals’ money behaviours and future orientation (having a long-term view). After measurement invariance is established for consistent interpretation of latent variables, the relationship between these latent qualities to identifying retirement saver is tested in the presence of socio-economic characteristics. The study has been further expanded to explore the gender difference using the multi-group analysis framework, which will be a separate paper.
The second paper focuses on entry to the housing market with the premise that buying a home is considered as a crucial step in life for young British adults in terms of settling down as well as accumulating wealth. Housing wealth, in particular, is of particular importance in the current British context, as many young adults are unable to own their homes. Reports from the financial services sector show that those with substantial financial help from their bank of mum and dad can get on the housing ladder. Some have argued that financial support may be obtained indirectly via cost saving from living at parental home (‘boomerang generation’). This study has attempted to test whether these claims are indeed a shared generational experience and if so, to what extent, using a discrete-time event history analysis. The issue of left-truncation was overcome by employing the conditional approach introduced by Guo (1993) and Jenkins (1995). It was found that both direct and indirect financial help was associated with increased chances of homeownership among British adults aged 25-49 in the post-crisis environment. A draft of this paper is available at SSRN.
The third paper attempt to examine patterns of wealth building among young British adults, putting three types of wealth – financial, housing and pension wealth. These types are then further distinguished by the nature of ownership – assets (owning) or debts (owing). The central hypothesis here is that there are distinctive groups of saver types depending on their preferences and economic capacity to utilise certain types of assets. Preliminary analysis show that indeed there are distinctive groups of savers, whose engagement in certain types of wealth and accumulation level vary. This research will be extended to examine the longitudinal patterns.