Life-Cycle Saving and Bequest Behavior

Abstract

The motive of saving to finance a stable level of future consumption expenditures has been given virtually exclusive emphasis in recent life-cycle and permanent income models of saving behavior. The present article argues that Fisherian models of optimal consumption and saving do not provide a good description of actual aggregate, private saving behavior. While life-cycle motives may characterize the savings behavior of the overwhelming majority of the working population, they do not provide a satisfactory explanation of the behavior of the top wealth holders, who account for a preponderant share of total private saving. Neoclassical models, which treat saving behavior as homogeneous, neglect the important systematic relationships observed in differential saving targets for bequest purposes out of labor and property income. In addition, the evidence suggests that assets themselves belong in the utility function of wealth owners. The quantitative significance of bequests indicates that a large part of wealth accumulation in capitalist economies is the result of motives other than the desire to defer present consumption to the future. The implications of the argument lead toward the rejection, or at least a fundamental reappraisal, of neoclassical rationality models based on intertemporal utility optimization as an explanation of aggregate saving behavior. Economists must look elsewhere if they are to account successfully for the observed saving behavior of the very wealthy.