Working Paper

How Parents Influence the Wealth Accumulation of Their Children

We decompose the channels through which parents and children have correlated net worth using a novel administrative data set from Sweden that follows a panel of parents matched to their grown children. We find that children’s initial endowments of net worth and their subsequent net worth accumulations are positively correlated with parents’ net worth. There are two main channels of intergenerational wealth correlation. Children of wealthy parents have higher earnings, even conditional on intergenerational correlation in earnings, most of which they consume. The intergenerational correlation in net worth comes largely from housing wealth. We argue that arises from correlated home ownership among high net worth parents and their children, the propensity of home owners to save, and from children of high net worth parents spending more on housing at the time of first purchase. We also consider the impact of bequests, intervivos transfers, portfolio choice, and savings propensities.

How Parents Influence the Wealth Accumulation of Their Children with Peter Englund and Thomas Jansson, Mimeo, July 17, 2013.

Timing the Housing Market

We create reliable measures of the cost of owning and the cost of renting that enable us to compare the level of rents and ownership costs across MSAs. We show that households can predict whether renting or owning will end up being less expensive ex post. This exercise is more robust than trying to predict house price changes or housing returns because much of that uncertainty is inframarginal in the optimal own/rent decision, which depends only on the which tenure mode is cheaper. We show that households can profitably time the home ownership decision. Using several simple trading rules, we estimate that households can save as much as 50 percent of annual rental costs over a five-year period by timing the decision of when to buy a home. The potential savings varies across cities.

Timing the Housing Market with Cindy Soo, Mimeo, March 30, 2013

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