How Do Parents' Expectations of Their Own Longevity Affect Inter-Vivos Transfers to Adult Children?

Megan M. Way, Babson College

How do people’s expectations of their own longevity, and their longevity relative to their spouse’s, affect intergenerational transfers? If one motivation for transfers is a “pre-payment” for services needed in old age, then we might expect these factors to be quite significant. Using the subjective survival probability questions included in the Health and Retirement Study, I first examine single (divorced, never-married or widowed) parents to see how, independent of spousal considerations, changes in survival probabilities may affect transfers. Then I look at remarried couples, who provide both a large age difference between spouses and an observable variation in the targeting of children as caregivers (his, hers and theirs) to see how one’s own survival probability relative to that of a spouse might affect transfers. I find that mothers, rather than fathers, display patterns more suggestive of pre-payment for services, although other potential explanations are explored for the intriguing patterns observed.