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

TitleSave, Spend, or Give? A Model of Housing, Family Insurance, and Savings in Old Age
Publication TypeJournal Article
Year of Publication2022
AuthorsBarczyk, D, Fahle, S, Kredler, M
Type of ArticleArticle; Early Access
ISSN Number0034-6527
Keywordsconsumption, Dynamic game, Family insurance, Inter-Generational Transfers, Saving, wealth of the elderly

How do housing and family shape the savings, spending, and inter-generational transfer behaviour of the elderly? Using the Health and Retirement Study, we document that inter-generational transfers to children are substantially backloaded, that homeowners dis-save much more slowly than renters but often sell their houses when entering a nursing home, and that care by children slows down nursing home entry and is linked to larger bequests, particularly of housing. To rationalise these facts, we develop a dynamic, non-cooperative model of the family with an indivisible housing asset and joint bargaining between elderly parents and their children over the housing and care arrangements of the parents. The model generates realistic savings and care choices and matches the timing of transfers and home liquidations. A key novelty is the housing-as-commitment channel: In the absence of long-run family contracts, housing provides a commitment device for more efficient savings. We find that this channel increases homeownership in old age by one-third and families' willingness to pay for houses by 5-10%. This mechanism also facilitates informal care, slows down spending, and leads to larger bequests, implications that we support empirically.

Citation Key WOS:000932693300001