The Correlation of Wealth across Generations
Kerwin Kofi Charles
University of Michigan - Department of Economics & Ford School; National Bureau of Economic Research (NBER)
University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)
Journal of Political Economy, Vol. 111, December 2003
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.
Date posted: January 8, 2004