The IUP Journal of Applied Finance
Children as Savings Instrument for Old Age

Article Details
Pub. Date : April, 2020
Product Name : The IUP Journal of Applied Finance
Product Type : Article
Product Code : IJAF20420
Author Name : Revansiddha Basavaraj Khanapure
Availability : YES
Subject/Domain : Finance
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No. of Pages : 27

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Abstract

This paper addresses the question of whether the parents' perceived expectation that their children will provide for their financial needs in old age lowers parents' level of savings in financial and physical assets. The study uses household level data from India to address this question. It is found that an increased perceived likelihood of children providing in old age leads to lower savings in passive instruments (e.g., bank deposits) in all age groups above 40 years. Savings in real estate wealth are seen to serve the primary purpose of bequest. However, interestingly, lower perceived expectation from children leads to lower savings in real estate wealth in age groups between 40 and 60 years. Active instruments seem to be accessed by only a minority of households and no consistent and statistically significant effect due to parents' expectation from children are observed. Educational expenditure, a form of investment in children, is affected by parents' expectation from children. A lower perceived expectation from children leads to lower educational expenditure per child.


Description

It was widely believed that children are an important source of post-retirement income for parents in periods prior to introduction of social security. The related literature can be traced to Rimlinger (1971), Becker and Murphy (1988), Hansson and Stuart (1989) and Becker (1993). Children still continue to provide for their parents in developing countries and to a certain extent in developed countries with social security (Ehrlich and Lui, 1991). A number of theoretical studies, including Lindbeck and Weibull (1988), and references therein, have analyzed how retirement support from children affects parents' attitude toward retirement savings (Jensen, 1990). Many papers, including this one, studies parents' decisions to indirectly affect the support received from children. However, an interesting formal analysis for parents treating support from children as fixed and beyond their control is presented in Chakrabarti et al. (1993). A comprehensive review of theories related to household savings can be found in Browning and Lusardi (1996).


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