Abstract
This study aims to understand the mechanisms through which severe memory problems could affect portfolio choice of older households. We focus on two potential mediators, cognitive ability and survival expectations, which are both expected to be adversely affected by memory disorders. Using data from the Health and Retirement Study, our findings show that cognitive ability and survival expectations are negatively associated with severe memory problems. Through the mediating role of cognitive ability, memory problems negatively affect the probability of holding risky assets, the amount of risky assets in the investment portfolios and financial wealth. Survival expectations, on the other hand, do not play a significant mediating role in portfolio allocation. In addition, the financial burden of severe memory problems does not seem to directly affect portfolio decisions.
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Notes
Dollar values are in US currency.
Besides financial assets defined above, household net worth includes retirement accounts, primary and secondary residences, autos, and businesses.
The ADL index ranges from 0 to 5, where a score of zero means the respondent reports no limitation in any of the five ADL including bathing, eating, dressing, walking across a room, and getting in or out of bed and five means the respondent reports limitation in all of the five measures of ADL. The general format of the question about respondent’s physical health is “Has a doctor ever told you that you have (the physical health condition)?” We created six indicator variables for health conditions: high blood pressure (high blood pressure or hypertension), diabetes (diabetes or high blood sugar), cancer (cancer or a malignant tumor of any kind except skin cancer), lung disease (chronic lung disease such as chronic bronchitis or emphysema except asthma), heart problem (heart attack, coronary heart disease, angina, congestive heart failure or other heart problems), stroke (stroke or transient ischemic attack) and arthritis (arthritis or rheumatism).
Other examples of applications of mediation analysis include the study of motivation as a mediator of the influences of parental socioeconomic status on children’s academic performance (Steinmayr et al. 2012), the mediating role of social information processing in the relationship between emotional regulation and aggressive behaviors in preschool children (Helmsen et al. 2012), the early maladaptive schema as a mediator in the relationship between depression and co-rumination in youngsters (Balsamo et al. 2015), and the mediating role of family savings in adolescent’s future orientation and health outcomes (Karimli and Ssewamala 2015).
Sobel test is used to test the significance of the multiplied coefficients corresponding to the indirect influence of memory problems on portfolio choice. Sobel test statistic: \(z=\frac{{{{\hat {\beta }}_a}{{\hat {\beta }}_b}}}{{\sqrt {\left( {{{\hat {\beta }}_b}^{2}\;SE_{{{{\hat {\beta }}_a}}}^{2}} \right)+} \left( {{{\hat {\beta }}_a}^{2}\;SE_{{{{\hat {\beta }}_b}}}^{2}} \right)}}.\)\({\hat {\beta }_a}\) is the regression coefficient for the relationship between the independent variable and the mediator, \({\hat {\beta }_b}\) is the regression coefficient for the relationship between the mediator and the dependent variable, \(SE{\hat {\beta }_a}\) is the standard error of the relationship between the independent variable and the mediator, and \(SE{\hat {\beta }_b}\) is the standard error of the relationship between the mediator variable and the dependent variable.
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Acknowledgements
The authors thank the Editor, Professor Elizabeth M. Dolan, three anonymous reviewers, Sherman Hanna, Catherine Montalto, Robert Scharff, and seminar participants at the Department of Human Sciences at Ohio State University for their helpful suggestions and comments.
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Cheung, C.H., Yilmazer, T. Wealth Management While Dealing with Memory Loss. J Fam Econ Iss 40, 470–485 (2019). https://doi.org/10.1007/s10834-019-09610-w
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DOI: https://doi.org/10.1007/s10834-019-09610-w