The Correlation of Wealth across Generations

Posted: 8 Jan 2004  

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)

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Abstract

In this paper, 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 asset ownership jointly explain nearly two-thirds of the wealth elasticity. Education, past parental transfers, and expected future bequests account for little of the remaining elasticity. Survey measures of risk correlate strongly between parents and children. However, they explain little of the intergenerational similarity 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. Our results imply that while parents do pass on human capital and saving propensities to their children, the level of intergenerational fluidity is much greater than that suggested by recent accounts in the popular press.

Suggested Citation

Charles, Kerwin Kofi and Hurst, Erik, The Correlation of Wealth across Generations. Journal of Political Economy, Vol. 111, December 2003. Available at SSRN: https://ssrn.com/abstract=468161

Kerwin K. Charles

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)

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Cambridge, MA 02138
United States

Erik Hurst (Contact Author)

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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