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http://ssrn.com/abstract=347086
 
 

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The Correlation of Welath Across Generations


Kerwin Kofi Charles


University of Michigan - Department of Economics & Ford School; National Bureau of Economic Research (NBER)

Erik Hurst


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

November 2002

NBER Working Paper No. w9314

Abstract:     
This paper examines the similarity in wealth between parents and their children, and explores alternative explanations for this relationship. We find that the age-adjusted elasticity of child wealth with respect to parental wealth is 0.37, before the transfer of bequests. Lifetime income and ownership of particular assets, both of which exhibit strong intergeneration similarity, jointly explain nearly two-thirds of the wealth elasticity. Education, past parental transfers, and expected future bequests account for little of the remaining elasticity. Using new experimental evidence, we assess the importance of risk tolerance. The risk tolerance measures vary as theory would predict with the ownership of risky assets, and are highly correlated between parents and children. However, they explain little of the intergenerational correlation in the propensity to own different assets, suggesting that children's savings propensities are determined by mimicking their parents' behavior, or the inheritance of preferences not related to risk tolerance. Additionally, these risk tolerance measures explain only a small part of the remaining intergenerational wealth elasticity.

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Date posted: November 7, 2002  

Suggested Citation

Charles, Kerwin Kofi and Hurst, Erik, The Correlation of Welath Across Generations (November 2002). NBER Working Paper No. w9314. Available at SSRN: http://ssrn.com/abstract=347086

Contact Information

Kerwin K. Charles (Contact Author)
University of Michigan - Department of Economics & Ford School ( email )
611 Tappan Street
Ann Arbor, MI 48109-1220
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Erik Hurst
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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