French savers in the current crisis Preferences, financial expectations, and the demand for savings and life insurance

Luc Arrondel & André Masson CNRS-PSE

17e Meeting of the Geneva Association’s Annual Circle of Chief Economists “Insurance prospects in a Changing Risk Environment” SCOR, 24-25 March 2015

Outline of the presentation §  Data: May 2007 – June 2009 – November 2011 § 

Panel dimension => November 2014 wave (results coming)

1.  Individual wealth behaviors: impact of the crisis § 

Δ behaviors = g (Δ preferences, Δ present resources, Δ expectations)

2.  Changes in future income and asset price expectations 3.  Changes in individual risk, time & other preferences § 

Usual measures: lottery choice, Likert scales

4.  Measuring individual preferences: scores § 

Method of scoring

§ 

Preference scores: determinants, correlations, wealth effects

5.  Scores: overall stability of risk & time preferences §  Conclusions 2

Available surveys

Pat€r surveys

Sample size

Specific characteristics

Number of questions for the scores Risk lottery on income (Barsky et al., 1997) Scales Experimental measures 3

Insee 1998 (methodological survey)

Sofres 2002 (3555 years old)

Sofres 2007

Sofres 2009

Sofres 2011

1!135

2!460

3!826

3!783

3!616

Panel 2002-20072009 (600 observations)

Panel 2007-20092011 (1087 panelisés)

-

2 adult generations interviewied (440 pairs parentschildren)

Panel 2002-2007 (798 observations) 2 spouses interviewied (905 couples)

Panel 2007-2009 Panel 2009-2011 (2234 observations) (1970 observations

80

50

115

90

90

-

Yes

Yes

Yes

Yes

Yes

-

Yes

Yes

Yes

-

-

400 subjects

-

-

1. Changes in behaviors

Behaviors, preferences & expectations Δ behaviors = g[Δ preferences, Δ present resources, Δ expectations]

§  Preferences towards risk, time & (family) transmission §  Inherited from the past (childhood, experience…)

§  Present available resources §  “Cash in hand” (income & wealth) §  Present liquidity constraints, unemployment, perceived exposition to risk §  Capitals: health, education…

Level of information §  Ability (may be improved by financial literacy?) & cognitive capacity

§  Expectations & beliefs about the future (italics: in Pater survey) §  Economic expectations: future labor income, prob. of unemployment; risk & return of real estate & financial assets, liquidity constraints §  Self expectations: future tastes, health, survival probabilities §  ‘Social’ expectations: future (of) retirement benefits & Welfare State 5

Example of decomposition of changes in behavior §  Investment choice between: §  a risky asset: expected return m & standard deviation σ §  & a safe asset of return r

§  Expected utility: share of risky asset p è p = (m–r) / σ2γ . Change in p may depend on: §  Changes in preferences: relative risk aversion γ §  Changes in price expectations concerning the risky asset (m, σ) – or even the riskless asset (r)

§  If background risk on labor income added: share p lower if the saver is ‘temperant’ (substitution of risks) §  Change in p may also come from changes in labor income risk §  If present risk exposition in labor income increases, the share p decreases (if the saver is temperant: 4th derivative of the felicity function) 6

« Under the financial crisis, you have become… ? » 65 - 74 years old, white collar & blue collars workers, income < 1 500€ 25 - 34 years old

2009 2011

More prudent Less prudent More adventurous

Less than 25, executives, Income > 3 000€

No change 2009

More farsighted Less farsighted No change

45%

1% 1% 49% 43% 2011

55 - 64 years old, craftsmen & shopkeepers, white collar & blue collar workers

1% 50%

48% 54%

51% 1%

Less than 35, executives, middle management, income > 3 000€

44% 2009

25 -44 years old, craftsmen & shopkeepers Executives, middle management, income > 3 000€

2011

More supportive of others

21%

22%

More individualistic

11%

16%

No change

64%

59%

Impact on the individual’s portfolio (2009) "Do you think that, in the future, you will save more money, less money or the same amount than today, in the following assets? »

Insurance savings

8

Impact on the individual’s portfolio (2011) "Do you think that, in the future, you will save more money, less money or the same amount than today, in the following assets? »

Insurance savings

9

« As regards financial investments, do you think that… » Pater 2007, 2009 & 2011 (panel) : in % (N = 1,087)

F1/%@348%2:.?0%012345%@/%:.>/06/5%:.%9:08D% '#!% 700/60%/06/5%:.% 9:08D%700/60%:/06/5%:.%07