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Children and Household Wealth

Author

Listed:
  • JohnKarl Scholz

    (University of Wisconsin-Madison)

  • Ananth Seshadri

    (University of Wisconsin-Madison)

Abstract

This paper examines the effects of children on consumption and wealth. To anchor intuition, we develop implications using a simple permanent income model with no uncertainty and complete markets. But this framework does not come close to matching the distribution of existing wealth. We therefore examine the effects of children using a rich, augmented life-cycle model, and using a life-cycle model with endogenous fertility. We find that children have a large effect on household’s net worth and consequently are an important factor in understanding the wealth distribution. The effects of children are much larger than the effects of asset tests associated with cash and near-cash transfers, given earnings realizations and the social security system experienced by households in the original HRS cohort. We also show that fertility and credit constraints interact in ways that significantly affect wealth accumulation.

Suggested Citation

  • JohnKarl Scholz & Ananth Seshadri, 2007. "Children and Household Wealth," Working Papers wp158, University of Michigan, Michigan Retirement Research Center.
  • Handle: RePEc:mrr:papers:wp158
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    File URL: http://www.mrrc.isr.umich.edu/publications/Papers/pdf/wp158.pdf
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    References listed on IDEAS

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    1. Ellen R. McGrattan & Edward C. Prescott, 2003. "Average Debt and Equity Returns: Puzzling?," American Economic Review, American Economic Association, vol. 93(2), pages 392-397, May.
    2. Erik Hurst & James P. Ziliak, 2006. "Do Welfare Asset Limits Affect Household Saving?: Evidence from Welfare Reform," Journal of Human Resources, University of Wisconsin Press, vol. 41(1).
    3. Matthias Doepke, 2004. "Accounting for Fertility Decline During the Transition to Growth," Journal of Economic Growth, Springer, vol. 9(3), pages 347-383, September.
    4. Hubbard, R Glenn & Skinner, Jonathan & Zeldes, Stephen P, 1995. "Precautionary Saving and Social Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(2), pages 360-399, April.
    5. Robert Haveman & Barbara Wolfe, 1995. "The Determinants of Children's Attainments: A Review of Methods and Findings," Journal of Economic Literature, American Economic Association, vol. 33(4), pages 1829-1878, December.
    6. Hubbard, R. Glenn & Skinner, Jonathan & Zeldes, Stephen P., 1994. "The importance of precautionary motives in explaining individual and aggregate saving," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 40(1), pages 59-125, June.
    7. Mariacristina De Nardi, 2004. "Wealth Inequality and Intergenerational Links," Review of Economic Studies, Oxford University Press, vol. 71(3), pages 743-768.
    8. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
    9. Karen E. Dynan & Jonathan Skinner & Stephen P. Zeldes, 2004. "Do the Rich Save More?," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 397-444, April.
    10. Lazear, Edward P & Michael, Robert T, 1980. "Family Size and the Distribution of Real Per Capita Income," American Economic Review, American Economic Association, vol. 70(1), pages 91-107, March.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Jonathan Skinner, 2007. "Are You Sure You're Saving Enough for Retirement?," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 59-80, Summer.
    2. Elsa Fornero & Annamaria Lusardi & Chiara Monticone, 2009. "Adequacy of Saving for Old Age in Europe," CeRP Working Papers 87, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    3. Córdoba, Juan Carlos & Liu, Xiying & Ripoll, Marla, 2016. "Fertility, social mobility and long run inequality," Journal of Monetary Economics, Elsevier, vol. 77(C), pages 103-124.
    4. Larry Jones & Alice Schoonbrodt, 2016. "Baby Busts and Baby Booms: The Fertility Response to Shocks in Dynastic Models," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 22, pages 157-178, October.
    5. Andreas Hubener & Raimond Maurer & Olivia S. Mitchell, 2016. "How Family Status and Social Security Claiming Options Shape Optimal Life Cycle Portfolios," Review of Financial Studies, Society for Financial Studies, vol. 29(4), pages 937-978.
    6. repec:eee:hapoch:v1_567 is not listed on IDEAS
    7. Mariacristina De Nardi, 2015. "Quantitative Models of Wealth Inequality: A Survey," NBER Working Papers 21106, National Bureau of Economic Research, Inc.
    8. Najat El Mekkaoui de Freitas & Bérangère Legendre, 2014. "Constitution d’un revenu complémentaire de retraite : quels sont les facteurs déterminants?," Économie et Statistique, Programme National Persée, vol. 472(1), pages 153-167.
    9. Negrusa, Brighita & Oreffice, Sonia, 2010. "Sexual Orientation and Household Savings: Do Homosexual Couples Save More?," IZA Discussion Papers 4961, Institute for the Study of Labor (IZA).
    10. repec:red:issued:16-340 is not listed on IDEAS
    11. Mariacristina De Nardi & Giulio Fella, 2017. "Saving and Wealth Inequality," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 26, pages 280-300, October.
    12. De Nardi, Mariacristina & Yang, Fang, 2014. "Bequests and heterogeneity in retirement wealth," European Economic Review, Elsevier, vol. 72(C), pages 182-196.
    13. Fang Yang, 2005. "Accounting for the heterogeneity in retirement wealth," Working Papers 638, Federal Reserve Bank of Minneapolis.
    14. Brighita Negrusa & Sonia Oreffice, 2011. "Sexual orientation and household financial decisions: evidence from couples in the United States," Review of Economics of the Household, Springer, vol. 9(4), pages 445-463, December.

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