A Two-Generation Model with Altruism for Reverse Mortgage Demand
Date & Time:19 February 2025, 8:00-9:00pm UTC Time Zone
20 February 2025, 7:00-8:00am AEDT
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Abstract: Reverse mortgage markets remain relatively small internationally, with one frequently cited reason being bequest motives. We study the role of reverse mortgages in intergenerational financial planning as a tool for families to bring forward bequests. We develop a new two-generation lifecycle model with parental altruism to compare the welfare gains of bequests and early bequests (inter vivos gifts) for homeowning parents and adult children seeking to purchase their first home. The two-generation model accounts for house price risk, interest rate risk, investment risk, wage growth, health shocks, long-term care costs, private pensions, and means-tested public pensions. The model results suggest that families across a range of wealth levels can enjoy large welfare gains when the parent uses a reverse mortgage both for retirement income and to gift the adult child a first home deposit. By replacing parent bequest utility with altruism, our model better captures the welfare gains of early bequest for both generations. Compared to literature which shows reverse mortgage demand decreasing as bequest motives increase, we find that as the parent cares more about the child’s wellbeing, through altruism, utility gains from reverse mortgages for the family increase.
About the speaker:
Katja Hanewald is an Associate Professor in the UNSW School of Risk and Actuarial Studies and a Vice President of the Asia-Pacific Risk and Insurance Association (APRIA). Her research focuses on modelling longevity and healthy ageing trends, as well as developing risk management and insurance strategies to address population ageing. Her work has been published in leading insurance, actuarial, economics, and health journals. She is a Co-Editor of the North American Actuarial Journal, an Editor of the Journal of Pension Economics and Finance, and an Editorial Board Member of the Journal of Risk and Insurance and the ASTIN Bulletin.
Research interests: Insurance economics; actuarial studies; longevity, healthy ageing and long-term care trends; design of public and private insurance programs to manage retirement risks; housing wealth as a source of retirement funding; behavioural aspects of financial planning; China