Personality traits and long-term care financial risks among older Americans

Individuals are susceptible to financial uncertainty across the financial life cycle. The last of three financial life cycle stages is the distribution of accumulated wealth to fund retirement. Individuals maximize utility by smoothing consumption over the life cycle while managing uncertainty events. Life cycle events include the potential need and financial cost for long-term care support and services. Pre-cautionary savings are used to exchange insurance premiums for the coverage of high uncertainty events. Despite the theoretical need for uncertainty protection, consumer demand for insurance that mitigates or eliminates risk exposure to uncertainty events is historically low. This conundrum is commonly referred to as uncertainty “puzzles.” The empirical and descriptive literature examines many potential factors for these protection gaps that range from financial, health, social insurance, substitute and complimentary assets, socio-demographic factors, individual preferences, behavioral, and psychosocial factors, which this current paper controls for a majority. Research is growing yet limited when considering individuals personality traits as potential explanations for personal finance behaviors. This study investigates and provides results that suggest that personality traits could partially explain the low demand for financial uncertainty insurance. Of the five personality traits, an individual who more strongly identifies with conscientiousness, holding all else equal, was found to associate positively with long-term care insurance ownership.