Reverse mortgages and financial literacy

Abstract

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. We exogenously manipulate characteristics of reverse mortgages 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 but are more sensitive to the interest rate and the insurance value of these products in terms of the non-negative equity guarantee.