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December 2003

Volume 111, Number 6
[Journal of Political Economy, 2003, vol. 111, no. 6]
© 2003 by The University of Chicago. All rights reserved.
0022-3808/2003/11106-0002$10.00
DOI: 10.1086/378526

The Correlation of Wealth across Generations

Kerwin Kofi Charles

University of Michigan and National Bureau of Economic Research

Erik Hurst

University of Chicago

In this paper, we find that the age‐adjusted elasticity of child wealth with respect to parental wealth is 0.37 before the transfer of bequests. Lifetime income and asset ownership jointly explain nearly two‐thirds of the wealth elasticity. Education, past parental transfers, and expected future bequests account for little of the remaining elasticity. Survey measures of risk correlate strongly between parents and children. However, they explain little of the intergenerational similarity in the propensity to own different assets, suggesting that children’s savings propensities are determined by mimicking their parents’ behavior, or the inheritance of preferences not related to risk tolerance. Our results imply that while parents do pass on human capital and saving propensities to their children, the level of intergenerational fluidity is much greater than that suggested by recent accounts in the popular press.

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  • We thank Heidi Shierholz for excellent research assistance and participants at the NBER 2000 summer consumption workshop, the University of Chicago’s Graduate School of Business macro lunch, the University of Michigan’s labor seminar, Dartmouth’s economic workshop, Wisconsin’s public finance workshop, University of Maryland’s macro seminar, University of Florida’s applied economics workshop, and Purdue University’s macro/international workshop for helpful comments. Additionally, we would like to thank Mark Aguiar, Orazio Attanasio, Rebecca Blank, John Bound, Sam Bowles, Charlie Brown, John Cochrane, Steve Davis, Anil Kashyap, Kevin Lang, Glen Loury, Anna Lusardi, Casey Mulligan, Karl Sholz, Jonathan Skinner, Gary Solon, Nick Souleles, and two anonymous referees. Hurst would also like to thank the financial support given by the William Ladany Research Fund at the Graduate School of Business, University of Chicago, for work on this project. Charles gratefully acknowledges support from the National Institute on Aging grant P01‐AG10179.

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