Household Composition and Savings: An Empirical Analysis based on the German SOEP Data

New developments in the literature on household saving behavior have focused on the question how household savings depend on the composition of a household. This question is of particular interest with respect to aggregate savings when we consider the ongoing changes of the forms of living in recent years (e.g. the tendency to smaller households). As a starting point this paper states some hypotheses about the linkages between household composition and savings that stem from the recent literature. Variables that are claimed to be relevant for household savings include the age sex composition of a household, the intra household distribution of income and the number and age of children within a household. In order to check how relevant these variables are for German households (i.e. do German households differ with respect to these variables) we first describe the composition of German households and how this composition has changed over the last two decades based on the GSOEP data. The variables of interest like age difference between spouses, intra-household distribution of income, labor market participation of spouses are found to be highly relevant among German households. In addition, a tendency to smaller households and later household formation is found to name only a few facts. The last section then tries to test the respective hypotheses about the household composition savings relation. The most important results found are the following Children positively effect savings in younger households but have a negative influence on savings in elder households. Double earners were found to save a significantly higher share of household income. We also found some weak evidence that a longer remaining life expectancy of the wife together with a higher wife’s income share positively effects a household’s savings rate.