Reverse Mortgages and Financial Literacy

Ismaël Choinière-Crèvecoeur and Pierre-Carl Michaud
Working paper #12
Retirement and Savings Institute – February 2023

A popular summary of the research, condensed onto two pages : Research Highlights

Few retirees use reverse mortgages. In this paper, we investigate how financial literacy and prior knowledge of the product influence take-up by conducting a stated-preference experiment, where respondents state what they would prefer in hypothetical situations presented to them. We manipulate characteristics of reverse mortgages exogenously (without respondents’ knowledge) to tease out how consumers value them and investigate differences by financial literacy and prior knowledge of reverse mortgages. We find that those with higher financial knowledge are: more likely to know about reverse mortgages; not more likely to purchase them at any cost; more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.