EuHEA seminar - Henry Cutler (Macquarie University Centre for the Health Economy)

Henry Cutler

Abtract

Deciding how to pay for accommodation when entering residential aged care in Australia is complex. It can impact the residents’ income, savings and wealth, along with their bequest value. Many older Australians and their informal carers lack financial literacy, which increases the likelihood of making suboptimal accommodation payment decisions. This may be exacerbated by cognitive decline. Our study examines how the financial literacy of informal carers impacts accommodation payment decisions made by Australians when entering residential aged care. It draws on an Australia wide survey to measure financial literacy among informal carers who helped residents make their accommodation payment decision. We used a set of regressions to estimate the relationship between the respondent characteristics and financial literacy, financial literacy and financial adviser use, and financial literacy and accommodation payment decision confidence, complexity, and stress. We found less than half of respondents were financially literate. Many exhibited underconfidence in their financial literacy, while others were overconfident. Both may lead to suboptimal accommodation payment decisions. We found aged care providers had a greater impact on using a financial adviser than financial literacy, suggesting a principal-agent relationship exists. Our results suggest higher financial literacy may reduce some decision complexity but its relationship with decision confidence was weak and its relationship with decision stress was not significant. These relationships were moderated by the perceived time available to decide on an accommodation payment. Increasing financial literacy is unlikely to substantially help people make a better accommodation payment decision. Increasing access to financial advice may reduce the likelihood of making suboptimal decisions, but limited trust and anxiety with using a financial adviser means there is no guarantee that people would use this service. Making the accommodation payment choice simpler may increase welfare by reducing the potential to make a suboptimal accommodation payment decision and reducing decision stress.

Discussant: Anne Nolan, Trinity College Dublin and Economic and Social Research Institute

Chair: Geir Godager, University of Oslo