Never Too Old to Save - Explaining the High Saving Rates of the Chinese Elderly∗

The high saving rate of China has attracted global attention. Furthermore, the saving rates of the Chinese elderly are especially high. Understanding why the elderly in China save at high rates is important for two reasons: (1) it partially explains the high aggregate saving rate in China, and (2) the fact that the elderly save more than the middle-aged contradicts the predictions of the life-cycle model. In this paper, I present evidence that pension income is the primary explanation for the high saving rates of elderly Chinese households. I provide this evidence in three steps. First, I document three stylized facts that are consistent with this hypothesis: (1) saving rates are higher in years with higher pensions, (2) saving rates are higher for those with more generous pension plans, and (3) policy reforms that exogenously increase ∗First draft: September, 2014. I would like to give special thanks to Maurizio Mazzocco, Adriana Lleras-Muney and Maria Casanova. Thanks also to Edward Kung, Kathleen McGarry, Aprajit Mahajan, Sarah Reber, and Till von Wachter. The paper has been presented at UCLA, Central University of Finance and Economics, National School of Development (Peking University), international conference on “Institutions, Reforms and Economic Development” (Peking University) and the 15th China Economics Annual Conference. All remaining errors are mine, of course. †Jinhe Center for Economic Research, Xi’An Jiaotong Unviersity, Xi’An, China. Email: [email protected]