Fertility and Savings: The Effect of China's Two-Child Policy on Household Savings

Abstract

China’s high household savings rate has attracted great academic interest but remains a puzzle.
Potential explanations include demographic, policy, and financial causes. Yet a lack of reliable
microlevel data on household finances makes it difficult to assess the relative importance of each
factor. This paper uses individual income and spending transactions linked to demographic
characteristics and financial information on loan applications and credit availability from a large
Chinese bank in Inner Mongolia. We match a large subset of bank customers to administrative
records covering marriage and births and obtain a unique view into consumption and saving
patterns around important life events. Our results point toward identifying income growth,financial instability, and credit access, rather than such directives as the one-child policy, as the
primary causes of high levels of savings among Chinese households.

Keywords: Household Savings, Two-Child Policy, China