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Savings behavior

Surprisingly fewer savings after inheritance parents

By on 23 December 2016

After having received an inheritance, we put less money in our savings accounts. That oddly enough is the conclusion drawn after investigating the personal finance of thousands of Danes, before and after inheriting.

Emotionally, the death of our parents is a huge setback. However, how unpleasant it may sound, we financially can profit from their inheritance. Yet still, after parents have deceased, Danish descendants put less money into their savings account than before their death.

This is concluded in a research led by Assistant Professor Alessandro Martinello of Lund University, Denmark. Martinello’s team examined the financial management of thousands of Danes before and after their inheritance.

It is only after five years after death that the Danish put more or less the same amount as before into their savings account, as they did yearly before their parent’s funeral.

Savings after inheritance

In the first year after inheriting, the Danish put eleven percentage points less of their income into their savings accounts. In subsequent years, the percentage is circa 8% lower than before the inheritance. They reach their old level of putting money in the bank again after approximately five years.

On balance, this is a fairly substantial and remarkable savings stagnation, Martinello writes. Because before Danes received an inheritance, they put around 12.5% of their income in their savings accounts. After inheriting, they deposit a lot less.

Consumption

An explanation could be that the inheritance is substantially used for an additional redemption of the mortgage. But that in itself does not explain why Danes put less money on the bank than before, continuously for four years.

Also Martinello’s statistics do not support this theory. The Dane mostly uses inherited capital (and income generated by the sale of the family home) for consumption. For the researchers this was as a surprise because the interest rates on loans can be relatively high.

Martinello links it to previous research, which shows that people’s line of reasoning lacks all logic when dealing with interest rates. In fact, the average EU and US citizen is likely to provide money at a relatively low-interest and, vice versa, borrow money at a relatively high-interest rate.

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Bas van Essen
Frankfurt

Savingsmonitor is a news blog reporting about savings behavior and statistics across whole the European Union. Bas van Essen is responsible for the content. Bas is a former business reporter, who covered the Dutch startup scene, the job market and personal finance. Bas served the Dutch Financial Times ('Financieele Dagblad'), the Dutch 'Financiële Telegraaf', Sprout.nl, Intermediair.nl and IDG. He followed a Master Communication Science and MBA Big Data & Business Analytics at the University of Amsterdam.