PEOPLE ARE different. We do things differently and live different lives. Yet, when it comes to retirement savings, we all have more or less the same overall needs.
Similar to living a healthy lifestyle – exercise daily, quit smoking and eat a healthy diet – saving for retirement is a must, but many people just cannot change their unhealthy habits or stick to a better alternative.
They spend their money prodigiously, live large and have no savings plan – and this could mean that they will retire poor.
What are the reasons behind such reckless behaviour? We may make an educated guess that the environment, experience and education are the main culprits.
Nonetheless, it might be beyond our imagination that part of the reason explaining such behaviour lies deep down in our genes!
Over the past decade, there has been a growing amount of research focusing on this issue. Recently published in the Journal of Political Economy, an article by Cronqvist and Siegel – “The Origin of Savings Behaviour” – illustrates the effect of genetic difference on the variation in savings behaviour.
By using the world’s largest data base on the registry of twins, the “Sweden Twin Registry”, the authors have been able to access detailed annual data on tax filing, financial status, as well as some information on health of all identical and fraternal twins born in Sweden between 1959 and 1985.
After selecting for a specific age range, income range and for those with no change in marital status, the authors narrowed things down to 14,930 twins for their investigation covering the five-year period from 2003 to 2007.
After controlling for socioeconomic status, asset-allocation choices, and similarity in surroundings, what the authors found is very intriguing.
The results showed that identical twins bore a greater resemblance to one another in terms of savings behaviour than did fraternal twins.
Approximately 33 per cent of the variation in savings behaviour was due to the genetic difference, and the genetic effect was stronger for men than for women, they found.
The authors further investigated the impact of parenting on savings behaviour, since there were several findings indicating a strong impact in this respect.
It turned out that the parenting effect was strong for young individuals (20 to 25 years old), then it gradually faded away and disappeared by the age of about 50.
However, the influence of genes was still strong – at 28 per cent, compared to 33 per cent for all samples – among people older than 50.
Interestingly, the findings also showed that the saving rate was positively correlated to income growth, while having a strong negative correlation with smoking and body mass index.
These co-relations between savings behaviour and other behaviours were due to genetic causes.
The authors argued in their article that people born impatient or lacking self-control might find that these traits have a consequence on their savings, and on some health issues.
Regarding this article and some other research that indicates the influence of genes on savings behaviour, policy planners may have to reassess current public policies to see whether they are effective enough to encourage savings, or to change savings behaviour.
Even though the genetic factor explains about one-third of savings behaviour, the remaining two-thirds still stems from the environment in which we live.
More research on the right environment should therefore be thoroughly conducted, while more investigation into behaviour intervention is needed, as well, so that we have effective public policies to help guide us all in having adequate retirement funds.
Prasopchoke Mongsawad, PhD, the author, is Assistant Professor of Economics,School of Development Economics, National Institute of Development Administration. firstname.lastname@example.org