Between the sixties and the late eighties the percentages of low-saving single-parent households and people living alone have grown dramatically at the expense of high-saving married households, while the household saving rate has declined equally dramatically. A preliminary analysis of population composition and savings by household type seems to indicate that about half of the decline in savings is due to demographic change. We construct a model with agents changing marital status, but where the saving behavior of the households can adjust to the properties of the demographic process. We find that the demographic changes that reduce the number of married households (mainly higher divorce and higher illegitimacy) induce all household types to save more and that the effect on the aggregate saving rate is minuscule. We conclude that the drop in savings since the sixties is not due to changes in household composition.
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Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number
235.
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