STOCHASTIC GOALS IN FINANCIAL PLANNING FOR A TWO-PERSON HOUSEHOLD

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Statistics in Transition New Series

Polish Statistical Association

Central Statistical Office of Poland

Subject: Economics , Statistics & Probability

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ISSN: 1234-7655
eISSN: 2450-0291

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VOLUME 16 , ISSUE 1 (March 2015) > List of articles

STOCHASTIC GOALS IN FINANCIAL PLANNING FOR A TWO-PERSON HOUSEHOLD

Radosław Pietrzyk * / Paweł Rokita *

Keywords : financial goals, personal finance, intertemporal choice, financial plan optimization, stochastic goals.

Citation Information : Statistics in Transition New Series. Volume 16, Issue 1, Pages 111-136, DOI: https://doi.org/10.21307/stattrans-2015-007

License : (CC BY 4.0)

Published Online: 31-October-2017

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ABSTRACT

In household financial planning two types of risk are typically being taken into account. These are life-length risk and risk connected with financing. In addition, also various types of events of insurance character, like health deterioration, are sometimes taken into account. There are, however, no models addressing stochastic nature of household financial goals. The last should not be confused with modelling factors that influence performance of financing the goals, which is a popular research topic. The problem of modelling goals themselves is, in turn, not so well explored. There are two main characteristics that describe a goal: magnitude and time. At least for some goals one or both of these characteristics may show a stochastic nature. This article puts forward a proposition of working goal time and magnitude into a household financial plan and taking their distributions into account when optimizing the plan. A model of two-person household is used. The decision variables of the optimization task are consumption-investment proportion and division of household investments between household members.

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