Inter-generational transfers and precautionary saving

This paper examines the effects of inter-generational altruism on late-in-life wealth accumulation. We designed and fielded a new survey to better measure transfers from parents to descendants as part of the Vanguard Research Initiative. New survey features include a carefully designed family inventory, a break-down of transfers into four categories, and a path of past and future expected transfers three years before and after. We also asked Strategic Survey Questions (SSQs) to identify preference parameters related to the desire to insure family risks via transfers. We use these new transfer measurements and SSQs to study the dynamics of parent-to-child giving by estimating a life-cycle consumption-savings model. Agents in our model save for consumption smoothing, uncertain medical and long-term care needs, inter-vivos transfers to cover uncertain family needs, and bequests. We find that there is a large and uncertain family need risk, and parents save in order to help when their descendants most need it, rather than at the end of life. Precautionary saving induced by family risks is quantitatively important in determining elderly wealth levels and inter-generational wealth transmission patterns.