TY  - JOUR
AU  - Charles,Kerwin Kofi
AU  - Hurst,Erik
TI  - The Correlation of Welath Across Generations
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9314
PY  - 2002
Y2  - November 2002
UR  - http://www.nber.org/papers/w9314
L1  - http://www.nber.org/papers/w9314.pdf
N1  - Author contact info:
Kerwin Kofi Charles
Harris School of Public Policy
University of Chicago
1155 East 60th Street
Chicago, IL 60637
Tel: 773.834.8922
Fax: NA
E-Mail: kcharles@uchicago.edu

Erik Hurst
Booth School of Business
University of Chicago
Harper Center
Chicago, IL  60637
Tel: 773/834-4073
Fax: 773/702-0458
E-Mail: erik.hurst@chicagobooth.edu
AB  - This paper examines the similarity in wealth between parents and their children, and explores alternative explanations for this relationship. 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 ownership of particular assets, both of which exhibit strong intergeneration similarity, jointly explain nearly two-thirds of the wealth elasticity. Education, past parental transfers, and expected future bequests account for little of the remaining elasticity. Using new experimental evidence, we assess the importance of risk tolerance. The risk tolerance measures vary as theory would predict with the ownership of risky assets, and are highly correlated between parents and children. However, they explain little of the intergenerational correlation 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. Additionally, these risk tolerance measures explain only a small part of the remaining intergenerational wealth elasticity.
ER  -