Do Households Save More When the Kids Leave? Take Two

When kids leave home, parents consume less but they don’t save more. So where is the money going? The analysis looks at three ways to square the circle: define saving more broadly: parents could be paying down debt faster; define consumption more broadly: they could be assisting grown children; and define income more precisely: they could be earning less than before. The results support the third explanation: when kids leave, parents work and earn less. But the results also show that consumption still declines relative to income without any rise in net worth, so this study does not fully resolve the puzzle.