Contractual Savings for Housing as a Commitment Device

Abstract

Individuals suffering from self-control problems may benefit from precommitment. This study examines whether individuals with self-control problems use commitment devices in the form of contractual savings for housing (CSH), which is a well-established savings product that promotes household savings and homeownership. The empirical analysis is based on nationally representative German Socio-Economic Panel (SOEP) data. The education level is used as a proxy for sophistication to differentiate the sophisticated from the naïve discounters, and the self-control problem is modeled by using self-assessed impulsivity and patience. The results suggest that the relationship between impulsivity and the take-up of CSH critically depends on sophistication and patience. Notably, there is a positive relationship between impulsivity and take-up. This pattern demonstrates how future oriented individuals aware of their self-control problems use commitment devices in the form of CSH.