Changing attitudes to risk at older ages: The role of health and other life events

This paper investigates risk attitudes at older ages in 14 European countries. Older individuals report lower willingness to take risks in all countries. Using panel data we are able to show that this relationship between financial risk attitudes and age is not due to cohort effects or selective mortality. We also show that key mechanisms driving this change with age are health changes and other life events – in our preferred specification around half of the overall evolution of risk attitudes with age can be explained by health shocks, retirement, and widowhood or marital change that occur increasingly frequently as individuals age. These life-events are a particularly important explanation of the evolution of risk attitudes for women.

Highlights

• We investigate financial risk attitudes at older ages in 14 European countries.

• We use longitudinal SHARE data to explain decreases in risk tolerance with ageing.

• We highlight the key role of health changes and other life events at older ages.

• Health and life-events explain around half of the raw age pattern in risk attitudes.

• Health deterioration plays a significant role and decreases willingness to take risks.