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Elderly Asset Management and Health: An Empirical Analysis

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  • Jonathan S. Feinstein

    ()
    (School of Management)

  • Chih-Chin Ho

    ()
    (Internal Revenue Service (IRS))

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    Abstract

    We present models of asset management by the elderly. We focus on saving, spend-down of assets, and gift-giving, and the influence of health on these precesses. We also study the evolution of elderly health and the impact of economic variables on health outcomes. We present results from estimating our models using data from waves one and two of the AHEAD dataset. Our model of asset management links elderly decisions about saving, spend-down of assets, and gift-giving in a system of equations. We divide households for which head and partner (if present) are in poor health and those for which head and partner are in good health; our specification allows for differences in health to affect both the average level of economic outcomes and the marginal effects of income and wealth on the outcomes. We also include in our model a set of sociodemographic control variables. Our model of health outcomes links health in the preceding period to health in the current period, allowing for three outcomes good health, poor health, or death. In our models of health outcomes we include variables measuring health in the previous period, wealth, age, education, and control variables. Our main results are the following. First, results for gift-giving suggest that at least some elderly do plan their estate transfer - those that have established trust funds or for which households assets exceed the estate tax filling threshold have a significantly greater propensity to give gifts. Second, the average level of gift-giving is lower for those in poor health, but the marginal effect of increasing wealth on gift-giving is much greater. This result is important in showing the ways in which health can interact with economic variables in influencing economic decision-making. Third, income is an important determinant of saving and spend-down. Fourth, other things equal, households that save are also more likely to give gifts. Fifth, sudden changes in family structure and health are associated with changing patters of economic behavior - most especially, becoming a widow or widower is associated with a significant increase in the likelihood both of spending out of assets and of making gifts. Finally, variables related to children have less effect on propensity to give gifts than expected - the only variable that has a significant effect is the number of children for which parents cannot provide income information, suggesting that the quality of the relationship between parents and children is important for gift-giving.

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    Bibliographic Info

    Paper provided by Yale School of Management in its series Yale School of Management Working Papers with number ysm159.

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    Date of creation: 15 Mar 2001
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    Handle: RePEc:ysm:somwrk:ysm159

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    Web page: http://icf.som.yale.edu/
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    Cited by:
    1. Courtney Coile & Kevin Milligan, 2006. "How Household Portfolios Evolve After Retirement: The Effect of Aging and Health Shocks," NBER Working Papers 12391, National Bureau of Economic Research, Inc.
    2. Engelhardt, Gary V. & Greenhalgh-Stanley, Nadia, 2010. "Home health care and the housing and living arrangements of the elderly," Journal of Urban Economics, Elsevier, vol. 67(2), pages 226-238, March.

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