To depend on one's children or to depend on oneself: savings for old-age and children's impact on wealth

Abstract

How did workers make provisions for old age before the introduction of old age pensions? What was the relative importance of dependence on children and saving for old age respectively? This article concerns the transition from a traditional family-based system for economic support in old age to a more modern system. Regarding the nineteenth century, studies have shown that (a) savings generally were insufficient for full retirement, and that (b) families were dependent on children's incomes when the breadwinner became older. Little attention has been paid to the question of how the relative importance of these two alternatives changed during the century. This question is addressed here in a cross-sectional study of net wealth based on probate inventories for three Swedish towns in the 1820s and the 1900s.The results show that in general the economic importance of children was larger among the lower socio-economic strata. They also reveal that net costs for having children increased between the investigated periods. This means that dependence on children became more expensive. Consequently, the economic importance of this alternative decreased. This may have been a strong motive for the fertility transition.On the other hand, net wealth for workers increased at the end of the nineteenth century. Financial assets constituted a great part of the increase. Workers with children had less financial savings than those without children, showing that there was a conflict between the traditional and the modern systems for support in old age. However, still at the turn of the twentieth century funds were generally too small to allow an old worker to retire. These results indicate that neither the old, nor the modern systems, fully satisfied the need for support in old age. This may explain why several Western European countries introduced old age pensions at the beginning of the twentieth century.