Extreme Weather and Retirement Savings
Date:
This paper discusses the impact of climate change on US families with a specific focus on household finances. We first derive a lifecycle model of consumption, then introduce climate change oriented consumption shocks as an additional expense which is proportional to labor income. We then test this model by empirically demonstrating that households experienced a statistically significant drop in contributions to deferred compensaion during environmental disasters from 2000-2020. Over the same period, debt-to-income (DTI) ratios increased for households during disasters, leaving families exposed to steeper declines in consumption and riskier financial well-being. We conclude with a discussion on how climate change may accelerate a retirement crisis and recommend suggestions for how the financial industry can help households address this challenge.
Coauthors: Ted Daverman, Michael Pensky, Fiona Sloof Acknowledgements: He Ren, Jan Speth Discussant: Galina Hale, University of Santa Cruz
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