Save, Spend or Give? A Model of Housing, Family Insurance, and Savings in Old Age

Daniel Barczyk, Matthias Kredler and Sean Fahle
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Sean Fahle: SUNY Buffalo

No 361, 2019 Meeting Papers from Society for Economic Dynamics

Abstract: We propose that interactions among old-age risks, housing, and family insurance are key for understanding the economic behavior of the elderly. Empirically, we find that homeownership reduces dis-saving while increasing the likelihood and persistence of informal care from children, which in turn protects bequests by preventing nursing home entry. Nonetheless, elderly parents and the childless display strikingly similar savings and bequests. Additionally, we calculate that one-fourth of transfers from retired parents to children flow before death. We build a dynamic model featuring strategic interactions between imperfectly-altruistic parent and child households, a housing choice, and long-term-care risk. The model successfully rationalizes our empirical findings. Homes are valuable for inducing care from children, accounting for 10% of ownership. Although the childless have no altruistic motive for saving, they resemble parents because they lack family insurance and thus have a stronger precautionary motive. Parents withhold most transfers until death for strategic reasons.

Date: 2019
New Economics Papers: this item is included in nep-age, nep-dge, nep-ias and nep-ure
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Citations: View citations in EconPapers (2)

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Journal Article: Save, Spend, or Give? A Model of Housing, Family Insurance, and Savings in Old Age (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed019:361

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