Personality Traits and Economic Preparation for Retirement

Michael Hurd RAND, NBER, NETSPAR, MEA

Personality Traits and Economic Preparation for Retirement

Michael Hurd

Angela Duckworth

Susann Rohwedder

David Weir

Financial support from the Social Security Administration via a grant to MRRC is greatly appreciated. Additional support from the National Institute on Aging for data and model development is greatly appreciated

What is personality?

Big 5 personality structure Extraversion (or extroversion),

Agreeableness

Conscientiousness (or Dependability)

Emotional Stability (or Neuroticism in reverse)

Culture (or Intellect, or Openness to Experience)

Related to economic outcomes, especially conscientiousness

Measurement in the Health and Retirement Study List of 26 words

Respondent can agree or disagree that word describes him/her

(Please indicate how well each of the following describes you.)

Q33a Outgoing (Extroversion)

Q33b Helpful (Agreeableness)

Q33c Moody (Neuroticism)

Q33d Organized (Conscientiousness)

Q33e Friendly (Extroversion)

Q33f Warm (Agreeableness)

Q33l Creative (Openness)

1=A lot, 2=Some, 3=A little, 4=Not at all

Reverse coded: 4 = a lot

Half of sample, 2006 leave-behind; other half in 2008

Following HRS Psychosocial Working Group, in each domain average the scores of the words.

Conscientiousness

Q33d Organized

Q33h Responsible

Q33m Hardworking

Q33t Careless (not reverse coded)

Q33z Thorough

Added and averaged; 1-4 with larger values applicable

Distributions of scores

Neuroticism scores among singles

One unit about 20th to 80th percentile

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.0 1.3 1.3 1.5 1.7 1.8 2.0 2.3 2.3 2.5 2.7 2.8 3.0 3.3 3.5 3.8 4.0

1.Male

2.Female

Extraversion, singles

0.00

0.20

0.40

0.60

0.80

1.00

1.201.40

1.60

1.80

2.00

2.20

2.25

2.40

2.50

2.60

2.67

2.80

3.00

3.20

3.25

3.40

3.50

3.60

3.67

3.75

3.80

4.00

1.Male

2.Female

Agreeableness, singles

0.00

0.20

0.40

0.60

0.80

1.00

1.20

1.20

1.80

2.00

2.20

2.40

2.50

2.60

2.75

2.80

3.00

3.20

3.25

3.33

3.40

3.50

3.60

3.67

3.75

3.80

4.00

1.Male

2.Female

Singles: conscientiousness

0.00

0.20

0.40

0.60

0.80

1.00

1.201.80

2.00

2.20

2.33

2.40

2.60

2.67

2.75

2.80

3.00

3.20

3.25

3.33

3.40

3.50

3.60

3.75

3.80

4.00

1.Male

2.Female

Singles: openness

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

1.3 1.6 1.9 2.1 2.2 2.3 2.4 2.5 2.6 2.8 2.9 3.1 3.3 3.4 3.5 3.7 3.8

1.Male

2.Female

Women have higher scores than men.

Married persons show same patterns as single persons.

Our question:

What is relationship between economic preparation for retirement and personality (Big 5)?

Conscientiousness likely related to greater economic resources…higher lifetime earnings.

But what about saving behavior? Someone with low earnings could be well prepared…good balance between resources and consumption. Related to ??

Why do we care about personality traits and economic preparation?

Explaining unexplained heterogeneity: better model fit, smaller standard errors

Targeted interventions: policy may work better for some individuals…would like to know in advance

Where does conscientiousness come from? Perhaps could modify it.

Economic preparation for retirement

Hurd and Rohwedder

MRRC Working Papers

Single persons and married persons 66-69

Initial consumption at 66-69

Estimated life -cycle paths of consumption from panel data (CAMS)

Economic resources

Initial bequeathable wealth (age 66-69)

Pension income and Social Security income

Account for differential mortality, taxes, stochastic out-of-pocket spending for health care.

Can resources support simulated lifetime consumption path with high probability?

Are singles and couples consuming/saving at a sustainable level?

Married persons: percent prepared by education

0%10%20%30%40%50%60%70%80%90%100%

< HS HS Some col. Col.

MaleFemale

Single persons: percent prepared by education

0%

10%

20%

30%

40%

50%

60%

70%

80%

< HS HS Some col. Col.

MaleFemale

Relationship to personality

Number of simulations out of 100 where person dies with positive wealth

Singles. Agreeableness

020

4060

8010

0su

m_n

odow

n10_

c

1 2 3 4agree

bandwidth = .8

Lowess smoother

Singles: conscientiousness

020

4060

8010

0su

m_n

odow

n10_

c

2 2.5 3 3.5 4consci

bandwidth = .8

Lowess smoother

Singles: extraversion

020

4060

8010

0su

m_n

odow

n10_

c

1.5 2 2.5 3 3.5 4extro

bandwidth = .8

Lowess smoother

Singles: Neuroticism

020

4060

8010

0su

m_n

odow

n10_

c

1 2 3 4neurotic

bandwidth = .8

Lowess smoother

Singles: openness

020

4060

8010

0su

m_n

odow

n10_

c

1 2 3 4open

bandwidth = .8

Lowess smoother

Probits to explain whether prepared (1 = yes)

By marital status and sex

With and without education

Couples. Marginal change in probability of being prepared

All p-value Males p-value Females p-valuewithout education neuroticism -0.05 0.03 0.02 0.62 -0.10 0.00extraversion -0.03 0.42 -0.10 0.10 0.02 0.65agreeable -0.02 0.63 -0.06 0.35 0.00 0.97conscient 0.08 0.02 0.17 0.00 0.01 0.79openness 0.00 0.91 -0.01 0.83 0.00 0.93

with education neuroticism -0.05 0.04 0.01 0.71 -0.09 0.00extraversion -0.02 0.51 -0.09 0.10 0.02 0.57agreeable -0.01 0.84 -0.04 0.48 0.01 0.90conscient 0.06 0.08 0.14 0.03 0.01 0.88openness -0.02 0.49 -0.03 0.60 -0.02 0.53N 949 357 592

Singles. Marginal change in probability of being prepared

All p-value Males p-value Females p-valuewithout education neuroticism -0.08 0.03 -0.09 0.21 -0.06 0.15extraversion -0.11 0.04 -0.20 0.04 -0.08 0.18agreeable -0.08 0.15 0.00 0.99 -0.05 0.51conscient 0.03 0.62 0.08 0.42 0.03 0.57openness 0.07 0.13 0.07 0.51 0.06 0.27

with education neuroticism -0.08 0.05 -0.09 0.22 -0.06 0.21extraversion -0.07 0.19 -0.20 0.04 -0.02 0.77agreeable -0.07 0.20 0.01 0.93 -0.05 0.49conscient 0.01 0.84 0.08 0.43 0.01 0.86openness 0.02 0.73 0.05 0.62 -0.02 0.73N 542 124 418

Is it economic resources or saving behavior?

Regression of total resources on personality with and without education

Resources

Bequeathable wealth and expected present value of pension income and Social Security benefits.

Life tables by sex, marital status and education

Regression of initial spending on personality with and without education.

Show coefficients on personality variables

Couples. Regression of log total economic resources

   All  p‐value Males  p‐value Females  p‐valueWithout education neuroticism  ‐0.10 0.04 0.11 0.22 ‐0.24 0.00extraversion  0.00 0.97 ‐0.12 0.35 0.09 0.31agreeable  ‐0.12 0.15 ‐0.13 0.34 ‐0.15 0.19conscient  0.41 0.00 0.62 0.00 0.25 0.01openness  0.17 0.01 0.17 0.16 0.16 0.04With education neuroticism  ‐0.07 0.13 0.07 0.39 ‐0.16 0.00extraversion  0.02 0.70 ‐0.10 0.37 0.11 0.16agreeable  ‐0.01 0.85 0.01 0.94 ‐0.09 0.41conscient  0.27 0.00 0.34 0.01 0.20 0.01openness  ‐0.01 0.93 0.02 0.88 ‐0.02 0.78

Singles. Regression of log total economic resources

   All  p‐value Males  p‐value Females  p‐valueWithout education neuroticism  ‐0.17 0.08 ‐0.15 0.47 ‐0.15 0.16extraversion  ‐0.22 0.10 ‐0.28 0.34 ‐0.22 0.15agreeable  ‐0.13 0.35 ‐0.05 0.87 ‐0.06 0.75conscient  0.31 0.02 0.32 0.23 0.33 0.03openness  0.38 0.00 0.20 0.50 0.41 0.00With education neuroticism  ‐0.11 0.18 ‐0.12 0.56 ‐0.08 0.41extraversion  ‐0.02 0.85 ‐0.32 0.25 0.06 0.66agreeable  ‐0.06 0.66 0.11 0.70 ‐0.01 0.93conscient  0.23 0.04 0.38 0.14 0.21 0.11openness  ‐0.02 0.90 ‐0.10 0.72 ‐0.03 0.83

Couples: Regression of log of initial spending

   All  p‐value Males  p‐value Females p‐valuewithout education neuroticism  ‐0.017 0.552 0.089  0.064 ‐0.082 0.026extroversion  ‐0.018 0.659 ‐0.046  0.494 0.008 0.872agreeableness  ‐0.029 0.543 ‐0.020  0.785 ‐0.016 0.817conscientiousness  0.170 0.000 0.289  0.000 0.090 0.100openness  0.130 0.001 0.152  0.023 0.103 0.024with education                neuroticism  0.000 1.000 0.069  0.121 ‐0.040 0.241extroversion  ‐0.005 0.905 ‐0.039  0.532 0.019 0.694agreeableness  0.029 0.512 0.048  0.492 0.026 0.691conscientiousness  0.096 0.017 0.147  0.032 0.065 0.205openness  0.034 0.346 0.075  0.234 0.004 0.923observations  949    357     592   

Singles: Regression of log of initial spending

   All  p‐value Males  p‐value Females p‐valuewithout education neuroticism  ‐0.065 0.125 ‐0.009  0.907 ‐0.086 0.088extroversion  ‐0.071 0.226 ‐0.037  0.742 ‐0.085 0.226agreeableness  ‐0.032 0.618 0.006  0.960 ‐0.054 0.518conscientiousness  0.104 0.071 0.091  0.382 0.109 0.120openness  0.211 0.000 0.192  0.095 0.214 0.001with education neuroticism  ‐0.045 0.255 0.008  0.915 ‐0.060 0.200extroversion  0.006 0.908 ‐0.056  0.605 0.029 0.666agreeableness  ‐0.010 0.865 0.063  0.564 ‐0.053 0.498conscientiousness  0.080 0.139 0.124  0.224 0.062 0.345openness  0.045 0.406 0.073  0.530 0.030 0.633observations  537    123     414   

Conscientiousness increases both resources and spending.

What is effect on saving?

Have estimated ln( )

cd c

dp and ln( )

wd w

dp

the effect of personality on initial consumption and total resources

Some manipulation will show

/1/c w

d c wc w dp

Difference in coefficients shows percentage change in consumption out of total rest-of-lifetime resources

Example. Married persons

Coefficients on consumption wealth consumption

minus wealth conscientiousness 0.170 0.410 -0.240openness 0.130 0.170 -0.040

For example if initial consumption is 6% of rest-of-lifetime resources, an increase in conscientiousness of one unit would reduce that to 4.5%

Effect of personality traits on ratio of consumption to rest-of-lifetime wealth (%). Couples

All Males femalesWithout education neuroticism 8.5 -1.7 15.7extroversion -1.6 6.9 -7.8agreeableness 8.7 10.7 13.0conscientiousness -23.7 -33.5 -15.6openness -4.3 -1.8 -5.3with education neuroticism 6.8 0.2 12.2extroversion -2.9 6.1 -8.9agreeableness 4.4 3.8 11.1conscientiousness -17.2 -19.1 -13.9openness 3.9 5.8 2.4

Effect of personality traits on ratio of consumption to rest-of-lifetime wealth (%). Single persons

All Males females without education neuroticism 10.0 14.2 6.4extroversion 14.6 23.9 13.5agreeableness 10.1 5.1 0.4conscientiousness -20.1 -23.2 -22.2openness -16.5 -0.7 -19.1with education neuroticism 6.8 12.4 1.8extroversion 2.9 26.1 -3.1agreeableness 4.6 -4.2 -3.9conscientiousness -15.3 -25.2 -15.0openness 6.0 17.7 5.7

Conclusions

Personality measures are associated with economic preparation at retirement: conscientiousness (+); neuroticism (-)

Operate via economic resources at retirement.

Also via spending out of economic resources.

For conscientiousness effects rather large:

Change from 20th to 80th percentile in conscientiousness reduces consumption out of rest-of-lifetime wealth by about 25%: spending increases but wealth increases much faster.

Other personality traits have meaningful effects but not always significant.

The End