Household Structure and Savings over the Life Cycle: a First Look at Evidence from Peruvian Cohorts

The Peruvian society has achieved significant improvements in terms of lower fertility and mortality over the last forty years leading, on average, to a demographic transition with lower dependency ratios. We analyze the implications of these changes at the micro level by constructing pseudo panels from household level data for Peru. We calculate age, cohort and year effects for variables related to household structure, educational attainment, labor force participation and savings. We find some evidence that suggests differences, by educational level, in the Peruvian demographic transition. Household size is smaller for the younger cohorts, in all but households with less educated heads. These differences in household size patterns are mainly explained by differences in the number of children, which may be related to fertility. Other adjustments in household structure play an important role over the life cycle, in the sense that extended families are more common for households with very young (less than 25) and elder (more than 60) household heads. The associated family arrangements add confusion to the meaning of headship over the life cycle, since selfreported heads stop being main income earners as they age. The analysis of savings also shows that adjustments in household structure over the life cycle limit the ability of the life cycle hypothesis (LCH) to explain their behavior. We find evidence that, given the absence of adequate or sufficient long-run savings alternatives, Peruvian households smooth consumption over the life cycle by smoothing income through intergenerational family arrangements.