Friday, August 14, 2009

Intergenerational Transmission of Savings: PSE Working Paper

"My Father was right": The transmission of values between generations

Luc Arrondel

The influence of parents' savings behaviour on that of their children has often been remarked. This paper attempts to explain this "poids d'Anchise" via a unique French dataset collected by DELTA and TNSSofres in 2002, which contains both savings and subjective information for two or three generations of the same family. Parents' and children's risk and discounting preferences are significantly positively intergenerationally correlated. The correlation coefficients are around 0.25, so that the two preferences are nonetheless far from identical. In addition, the elasticity of children's wealth with respect to that of their parents is around 0.22. This correlation is corrected for the influence of age on wealth, and concerns only co-existing generations, that is before the most significant intergenerational transfers have taken place. The analysis of the raw correlations with a series of explanatory variables reveals that over 40% of this elasticity can be explained by the permanent incomes of the two generations. Each of education and preferences separately account for about 20%, and previous intergenerational transfers for about 13%. When permanent income is controlled for, the contribution of savings preferences is around 13%. The transmission of preferences therefore plays a non-negligible role in the intergenerational transmission of wealth inequalities, but is far from being the most important factor .

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