Do Children Learn to save from Their Parents?* Preliminary and Incomplete

It is well-known that small di¤erences in discount rates, persisting over generations, make it much easier to explain US wealth inequality across households as an equilibrium outcome. At the individual level, recent micro studies suggest that variations in preferences or in planning behavior are plausible candidates to explain inequality in pre-retirement savings among households in similar circumstances. In this paper, we argue that if such di¤erences in behavior are really a function of an agent’s basic personality, then we would expect parents and children to share such traits, and so parental savings behavior should predict both savings and other investment decisions of the children such as education. We formalize this argument using a simple life-cycle model and estimate family savings e¤ects on household data in the PSID. In our model such family e¤ects can be interpreted as arising from either patience or self control. We …nd that family e¤ects are signi…cant both statistically and economically; parental savings behavior explains both education and savings choices of childrens’households. We also …nd that these e¤ects are linked to self reports about attitudes toward planning for the future, but not to reported willingness to defer consumption. *Postlewaite gratefully acknowledges support from National Science Foundation Grant #SES 0095768. Support from National Institutes of Health National Institute on Aging, Grant number P30 AG12836. Knowles is grateful for support from the TIAA-CREF Institute. We are also grateful for funding from the Boettner Center for Pensions and Retirement Security at the University of Pennsylvania. We wish to thank Abhijit Banerjee, Alberto Bisin, Hal Cole, Pat Kehoe, David Laibson, Lee Ohanian, Petra Todd, Jesus Fernandez-Villaverde, Ken Wolpin and workshop participants at Yale, Carnegie-Mellon, Iowa and Rochester for helpful comments.