Determinants of Tontine Demand in Thailand
Article Sidebar
Main Article Content
Abstract
Thailand has currently entered an aging society. Due to medical advances, most elderly individuals do not in the pension system that are increasingly facing longevity risk. A tontine is a financial instrument that can mitigate the risk of inadequate savings in the event of unexpectedly longer lifespans. This study examines the factors that play a crucial role in determining the demand for tontines based on a survey and hypothetical questions of 452 respondents conducted in six provinces in Thailand, it is documented that age, risk tolerance and the health of respondents are key determinants of tontine demand. More importantly, the results indicate a positive association between preferences in gambling and financial literacy with the demand for tontines. The findings suggested that the demand for tontines aligns with the hedging of longevity risk. Moreover, tontine can serve as an alternative to conventional savings for individuals who prefer gambling, given that tontine returns exhibit a significantly positive skew akin to gambling outcomes. Further, analysis revealed that the interaction term of low financial literacy and a preference for gambling was positively associated with the demand. This suggests that low financial literacy may contribute to an additional bias in gambling. However, it does not find that financial constraints affect the demand for tontine. This finding is inconsistent with the notion that prize-linked saving products are preferred by those facing financial constraints whose saving incentives are to change their financial status rather than focusing solely on retirement security. Overall, understanding the demand for tontines should be beneficial for designing alternative savings products to address the challenges of Thai aging society. However, these findings are still preliminary; a more rigorous study should be conducted in future research.
Article Details
References
Bernhardt, T. and Donnelly, C. (2019). Modern Tontine with Bequest: Innovation in Pooled Annuity Products. Insurance: Mathematics and Economics, 86, 168-188.
Bernhardt, T. and Donnelly, C. (2021). Quantifying the Trade-Off Between Income Stability and the Number of Members in a Pooled Annuity Fund. ASTIN Bulletin: The Journal of the International Actuarial Association, 51(1), 101-130.
Bräutigam, M., Guillén, M. and Nielsen, J. P. (2017). Facing Up to Longevity with Old Actuarial Methods: A Comparison of Pooled Funds and Income Tontines. The Geneva Papers on Risk and Insurance-Issues and Practice, 42(3), 406-422.
Bravo, J. M. (2022). Pricing Participating Longevity-Linked Life Annuities: A Bayesian Model Ensemble Approach. European Actuarial Journal, 12, 125-159. https://doi.org/10.1007/s13385-021-00279-w.
Cohen, J. (1953). The Element of Lottery in British Government Bonds, 1694-1919. Economica, 20, 237-246.
Cole, S. A., Iverson, B. and Tufano, P. (2022). Can Gambling Increase Savings? Empirical Evidence on Prize-Linked Savings Accounts. Management Science, 68(5), 3282-3308.
Cookson, J. A. (2018). When Saving is Gambling. Journal of Financial Economics, 129, 24-45.
Dizon, F. and Lybbert, T. J. (2021). Leveraging the Lottery for Financial Inclusion: Lotto-Linked Savings Accounts in Haiti. Economic Development and Cultural Change, 69(4), 1323-1349.
Filiz-Ozbay, E., Guryan, J., Hyndman, K., Kearney, M. S. and Ozbay, E. Y. (2015). Do Lottery Payments Induce Savings Behavior? Evidence from the Lab. Journal of Public Economics, 126, 1-24.
Fong, J. H., Koh, B. S. K., Mitchell, O. S. and Rohwedder, S. (2021). Financial Literacy and Financial Decision-Making at Older Ages. Pacific-Basin Finance Journal, 65(101481), 1-17.
Forman, J. and Sabin, M. J. (2015). Tontine Pensions. University of Pennsylvania Law Review, 163(3), 755-832.
Gaudecker, H.-M. V. (2015). How Does Household Portfolio Diversification Vary With Financial Literacy and Financial Advice?. The Journal of Finance, 70, 489-507. https://doi.org/10.1111/jofi.12231
Gemmo, I., Rogalla, R. and Weinert, J. H. (2020). Optimal Portfolio Choice with Tontines under Systematic Longevity Risk. Annals of Actuarial Science, 14(2), 302-315.
Grohmann, A., (2018). Financial Literacy and Financial Behavior: Evidence from the Emerging Asian Middle Class. Pacific-Basin Finance Journal, 48, 129-143.
Janposri, P. (2021). The Role of Financial Literacy in Retirement Planning and Wealth Accumulation Among Self-Employed Thai Workers. Journal of Population and Social Studies, 29, 177-194. http://doi.org/10.25133/JPSSv292021.011.
Kim, H. H., Maurer, R. and Mitchell, O. S. (2021). How Financial Literacy Shapes the Demand for Financial Advice at Older Ages, The Journal of the Economics of Ageing, 20(100329), 1-12.
Koh, B. S. K., Mitchell, O. S. and Rohwedder, S. (2020). Financial Knowledge and Portfolio Complexity in Singapore, The Journal of the Economics of Ageing, 17(100179), 1-11. https://doi.org/10.1016/j.jeoa. 2018.11.004.
Lusardi, A., Mitchell, O. S. and Curto, V. (2014). Financial Literacy and Financial Sophistication in the Older Population. Journal of Pension Economics & Finance, 13(4), 347-366. http://doi.org/10.1017/S1474747214000031.
Lusardi, A. and Mitchell, O. S. (2011). Financial Literacy Around the World: An Overview. Journal of Pension Economics and Finance, 10(04), 497-508.
Lusardi, A. and Mitchell, O.S. (2017). How Ordinary Consumers Make Complex Economic Decisions: Financial Literacy and Retirement Readiness. Quarterly Journal of Finance, 7(03), 1-31.
McKeever, K. (2009). A Short History of Tontines, Fordham. Journal of Corporate and Financial Law, 15, 491-521.
Milevsky, M. A. (2015). King William’s Tontine: Why the Retirement Annuity of the Future Should Resemble Its Past. United Kingdom: Cambridge. Cambridge University Press.
Milevsky, M. A. and Salisbury, T. S. (2015). Optimal Retirement Income Tontines. Insurance: Mathematics and Economics, 64, 91-105.
Milevsky, M. A. and Salisbury, T. S. (2016). Equitable Retirement Income Tontines: Mixing Cohorts Without Discriminating. ASTIN Bulletin, 46, 571-604.
Mitchell, O.S, & Lusardi, A. (2015). Financial Literacy and Economic Outcomes: Evidence and Policy Implications. The Journal of Retirement, 3(1), 107-114. http://doi.org/10.3905/jor.2015.3.1.107.
Olivieri, A. and Pitacco, E. (2020a). Linking Annuity Benefits to the Longevity Experience: Alternative Solutions. Annals of Actuarial Science, 14(2), 316-337.
Olivieri, A. and Pitacco, E. (2020b). Longevity-Linked Annuities: How to Preserve Value Creation Against Longevity Risk. In: M. Borda, S. Grima, & I. Kwiecien (Eds.), Life insurance in Europe Financial and monetary policy studies, (pp. 103-126). New York: Springer.
Tufano, P. (2008). Saving Whilst Gambling: An Empirical Analysis of UK Premium Bonds. American Economic Review, 98 (2), 321-326.
Tufano, P., Maynard, N. and De Neve, J.E. (2008). Consumer Demand for Prize-Linked Savings: A Preliminary Analysis. in Harvard Business School Working Paper No. 08-061, Cambridge: Harvard Business School.
Weinert, J. H. and Gründl, H. (2020). The Modern Tontine. European Actuarial Journal, 11, 49-86.
Srivisal, N., Tirapat, S., Kiatsupaibul, S., & Puang Ngern, B. (2022). Tontine as a Hedging Instrument for Retirement Investment. Research commissioned by Thailand Capital Market Development Fund (CMDF). Bangkok. (In Thai).
Tirapat, S. (2021). How does tontine benefit Thai elderly?. Nida Business Journal, 29, 51-70. (In Thai).