John Knowles: Working Papers

Title: Wealth Inequality and Parental Transmission of Savings Behavior

Authors: John Knowles and Andrew Postlewaite

Working Paper: October 2003

First Version: November, 2002

Latest Version (note new title): July 2005

Funding: This research was supported by a grant to Postlewaite from the NSF.

Abstract: Disparities in household wealth are much larger than standard economic theory predicts, and empirical studies are only partially successful in relating these disparities to observable variables. A recent stream of empirical research finds that wealth disparities are associated with differences in how much observationally similar households choose to save. In this paper, we use household panel data to ask whether the transmission of savings behavior through the family plays a significant role in wealth accumulation. We identify a large minority of households who save much more than predicted by standard regression models of savings, and we show that children from these households also save more than predicted. We show that these wealth differences are strongly correlated with indicators of attitudes towards the future.

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