Towards the end of bequest? The life cycle hypothesis sold to seniors

Anne Gotman

doi:10.15448/1984-7289.2011.1.9196

Abstract

Reverse mortgages are designed for senior homeowners said to be “ house rich, cash poor .” They allow for the extraction of equity from homes without payments being made until death or the house is sold. They are designed to alleviate public long- term care expenses, as well as to maintain senior citizens’ well-being and consumption standards. Inspired by the life cycle hypothesis, they imply “eating the house” in order to meet one’s needs, as well as giving up the idea of bequest. This paper addresses the lengthy take-off of reverse mortgage markets, the life cycle theory sustaining reverse mortgage policies, and the financial and material consequences of their purchase for aged homeowners. Whereas evaluation reports and case studies bring to light constraints already driving indebted younger elders to come to what appears to be a ‘last resort solution’, one may ask whether reverse mortgage buyers do represent a kind of avant- garde conforming to the life cycle hypothesis requisites

Highlights

Reverse mortgages are a very specific form of spending housing wealth which allows homeowners to borrow money by transferring ownership of the house to the bank
What can be concluded from these empirical data about the motive to bequest? As shown by our enquiry on inheritance, younger generations do maintain that their parents’ good life can be the best memory and gift to be passed on (Gotman, 1988)
Though, that parents and adult children do conform to the life cycle hypothesis standards about “bequest motives” – a matter duly screened, whose results appear delusive?3 When, instead of questioning bequeathing motives, questions are 3 in Skinner’s view, “the debate about motives is ‘a non-debate”, since saving for bequests and precautionary saving are not substitutes, but could well be complements, in accordance with a combination of motives which probably explain wealth accumulation in the 17th century, in 2002, and in the future (Skinner, 1985)

Summary

Anne Gotman*

Resumo: A hipoteca reversa, destinada a proprietários idosos conhecidos como “house rich, cash poor”, lhes dá a oportunidade de dispor do valor de suas casas sem ter que devolvê-lo durante a vida, a não ser que a moradia seja vendida ou desocupada pelo proprietário. Este artigo discute a lenta decolagem do mercado das hipotecas reversas, a hipótese do ciclo de vida que fundamenta esses empréstimos e as políticas públicas que lhes regem, e também as conseqüências financeiras e materiais da compra para os proprietários idosos. Embora os relatórios de avaliação e estudos de caso destaquem as pressões que levam idosos ainda jovens a se engajarem numa “solução de último caso”, se quer saber se os titulares destas hipotecas realmente são, como os economistas gostariam, uma vanguarda em conformidade com as previsões da hipótese do ciclo de vida. Palavras-chave: hipoteca reversa; hipótese do ciclo de vida; herança; idosos; políticas para idosos

Introduction

The spread of reverse mortgages in the US and elsewhere

How reverse mortgage buyers deal with their wish to bequest

Findings

The dispute surrounding bequest motives and its outlines