Transfers, Informal Insurance, and Precautionary Saving

Jennifer Mellor, College of William and Mary
Eric R. Jensen, College of William and Mary

A branch of the literature on the precautionary motive for saving has found that means-tested social insurance has a dampening effect on saving. A separate literature has focused on grown children of retirees, and has demonstrated the importance of inter vivos transfers to parents with little retirement accumulation. Combining these findings, we examine the contention that informal insurance, in the form of transfers within the family, can have the same moral hazard effect on saving that more formal forms of social insurance have been shown to exert. Using multiple waves of the Health and Retirement Study, we identify possible influences on saving behavior, such as anticipated inter vivos transfers in retirement. We use exogenous state-level variation to identify instruments for several potentially endogenous variables. In our empirical work to date, estimated impacts of potential intergenerational transfers on retirement portfolios are mixed.