Inheritance Expectation and Savings Behavior

Noura Insolera, Graduate Center, City University of New York (CUNY)

Using data from the Panel Study of Income Dynamics, this paper analyzes whether the expectation of an inheritance in the near future affects current and future savings behavior. A rich set of socioeconomic and demographic characteristics as well as previous inheritances experience are examined. The results show that those who expected an inheritance greater than or equal to 100% of their yearly total family income had significantly less savings regardless of whether the expected inheritance was ever received. The results also show that receiving an inheritance is associated with increased savings 5 years later, especially when that inheritance was not expected. This is the first step in a larger project to look into inheritance expectation and realization, consumption smoothing behavior, and how these population dynamics change over time.