Children and Household Wealth
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Abstract
This paper focuses on the effects that children have on life-cycle wealth accumulation. We start examining the effects of children using a simple permanent income model with no uncertainty and complete markets. But this framework does not come close to matching the distribution of existing wealth. So we then look at the effects of children in the augmented lifecycle model discussed in Scholz, Seshadri, and Khitatrakun (2006). But both approaches take the arrival and timing of children as being exogenous: because fertility may be affected by wealth and earnings expectations, we also describe results from a model that incorporates endogenous fertility in the spirit of Becker and Barro (1988). Our conclusions about the importance of children in understanding wealth accumulation are consistent across modeling approaches.
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2007 RRC