Saving and Bequest in China: An Analysis of Intergenerational Exchange

Abstract

Particularly high saving rates among the elderly in both rural and urban China call for an investigation of the involved bequest motive. Utilizing unique survey data from a diverse group of Chinese households, we document that the magnitude of the bequest from parent to child is synchronized with the level of personal assistance from child to parent. Moreover, both bequest and assistance are increasing in the parent's income and decreasing in the child's income. Comparing with the prediction from a stylized overlapping generations model, these findings are consistent with an exchange-based bequest motive. This conclusion has implications for how public policies and transfer schemes may be designed in order to contribute to the government objective of increased private consumption. Our results indicate that an important driver for our result is the housing wealth as part of the bequest.

Evaluating the effects of sociodemographic characteristics and financial education on saving behavior

“…However, Alessie et al (2011) suggested that the higher financial literacy level reduces planning costs and decreases the barriers to the information required for saving and investing. The finding of Lusardi (2019) reveals that early-life education is a strong predictor of late-life financial knowledge and also suggests that enrollment rate at the school is a significant instrument in the first stage of financial education (Mancebon et al, 2019;Almas et al, 2020). Similarly, Beckmann (2013) argues that financial literacy is positively and significantly related to saving and investment.…”

“…They concluded that the income category is the most important factor in being risk-tolerant (Sangeeta and Kanika, 2014;Trautman and Van de Kulien, 2018). Almas et al (2020) researched the Chinese context. Their results provided evidence that high saving rates among the young can be explained by credit constraints.…”

“…According to that, the findings of this paper confirmed the results of previous researchers. Also, the result of the interactive impact of income and financial literacy on financial risk aversion showed that the coefficient is decreased, which means that the effect of income became lower when people have a high level of financial literacy (Almas et al, 2020).…”

“…Their findings confirmed that financial literacy and economics education help individuals make more informed decisions about money and saving decisions. On the other side, a household with higher risk tolerance tends to make less saving (Almas et al, 2020). Moreover, financial literacy has become a significant challenge in society, especially among the low-income people.…”