This paper examines cross-generational connections in asset ownership. It begins by presenting a theoretical framework that develops the distinction between the intergenerational transfer of knowledge about financial assets and the direct transfer of dollars from parents to children. Its analysis of data from the Panel Study of Income Dynamics (PSID) reveals intergenerational correlations in asset ownership, and we find evidence to suggest that parental asset ownership or family-based exposure to assets affects adult childrenÕs decisions about bank account and stock ownership.

Frank P. Stafford

Ngina S. Chiteji

English

Research Papers in Economics

     Working Paper No. 314 
Asset Ownership Across Generations 
by 
Ngina S. Chiteji
Department of Economics
Skidmore College
Saratoga Springs, NY 12866
nchiteji@skidmore.edu
&
Research Fellow
Center on Poverty, Risk and Mental Health 
University of Michigan
Ann Arbor, MI 48106
Frank P. Stafford
Department of Economics 
University of Michigan
&
Institute for Social Research
University of Michigan
Ann Arbor, MI 48106
fstaffor@isr.umich.edu 
September, 2000
We are grateful to Sandy Baum, Kerwin Charles, Sheldon Danziger, Pamela
Davis-Kean, Dan Hamermesh, Erik Hurst, Ming-Ching Luoh, Joseph Lupton,
Hiromi Ono, and participants of the Economic Behavior Program seminar series
at the University of Michigan for helpful comments. Additionally, special thanks
is owed specifically to Erik Hurst and Ming-Ching Luoh for their assistance as
we were constructing our dataset. We also thank Margaux Matter for her
research assistance. Finally, Chiteji wishes to acknowledge the financial
support of a Ford Foundation grant in Poverty, the Underclass, and Public
Policy. This research also was sponsored in part by Citicorp Credit Services and
the Alfred P. Sloan Foundation Center for the Ethnography of Everyday Life. All
views and mistakes are the sole responsibility of the authors. 
"Give a man a fish and you feed him for a day; teach a man to fish, & you feed him for the rest of his life."
INTRODUCTION 
Intergenerational transfers are widely recognized as having an effect on the wealth holdings of the receiving offspring.
Less emphasized in the literature are the different forms  of transfers and the role of financial knowledge from the
family. What is the relevance of knowledge for wealth holding? In a world of perfect information, individuals are
presumed to know the range of investment options in the economy and asset-ownership involves deciding where to place
one's savings given an income stream, a desired spending path, and the characteristics of the different saving
instruments. In practice, however, the information needed to make these choices is neither costless nor evenly
distributed.1
In this paper we explore the distinction between intergenerational transfers of knowledge about financial assets and
direct dollar transfers from parents to children. Transfers such as bequests of assets have been estimated to account
for anywhere from 15% to 46% of household wealth (Kotlikoff and Summers,1981; Kopczuk and Lupton, 2000).
Additionally, the importance of inter vivos transfers, such as those facilitating human capital accumulation and
downpayment assistance with home purchases, also has been investiged (Cox 1990, for example). Here we examine
parents' ability to affect their children's wealth outcomes by imparting critical information about asset-ownership to
the next generation. This possibility has not been readily explored in literature on wealth, yet the intergenerational
transfer of knowledge has some inherent differences from asset transfers.For example, if each partner in a marriage receives an inheritance the effect on their family wealth is likely to be
additive. In contrast, when considering the information that the two partners may have acquired while growing up, one
spouse may believe equities a necessary part of a portfolio while the other spouse 'wouldn't touch the stuff.' The net
result on their family choice may be very unclear. Certainly, just as for differences in religious or cultural background,
we would expect the result to be other than simple addition. We find that variants of the generational models of
attributes used in biology serve as a good framework for organizing one's thinking about asset knowledge transfer
across generations. After reviewing these models briefly, we apply the approach to the asset choices across
generations in the Panel Study of Income Dynamics (PSID), 1984 and 1994.2
Interest in intergenerational knowledge transfer is accentuated by findings of race differences in wealth holdings, and in
the understanding that there appears to be some relationship between intergenerational transfers and inequality. For
example, recent empirical research has found race differences in both overall levels of wealth and in the form  of
financial asset holdings, more specifically (Blau and Graham, 1991; Oliver and Shapiro,1995; Hurst, Luoh and Stafford,
1998; and Wolff, 1998), in entry into the stock market during the peak periods of 1984-1994 (Hurst, Luoh, and
Stafford, 1998), and in the consequent growth of wealth holdings over time (Lupton and Stafford, 2000).3 Other
research has established some connection between intergenerational transfers and the observed racial inequality in the
distribution of aggregate wealth (Blau and Graham, 1991; and Menchik and Jianakoplos, 1997).
These results echo the findings from research on educational outcomes, earnings capacity, and home ownership. There,
differences in intergenerational transfers across groups--particularly transfers such as human capital investment in
children and funds provided as start-up financing for housing investment--have been linked to differences in outcomes
in the recipient generation (Loury, 1981; Oliver and Shapiro, 1997; and Charles and Hurst, 2000). In these studies, too,
the role of information versus direct resource transfers has not received much attention. In our work we attempt to
see whether there is a knowledge effect beyond direct transfers, via gifts or bequests.
Places that early knowledge may be acquired include the media and formal schooling, both of which may supplant (or
supplement) lessons learned within the family. Research in the social sciences has shown the family to be an important
locus for gathering information about a variety of life activities. Parents have been shown to be an influential source of
information as they teach children about behavior, values, language, employment prospects, and violence,
(Cavalli-Sforza and Feldman, 1981; Boyd and Richerson, 1985; Oliver and Shapiro, 1995; Wilson, 1995; Eccles, et al,
1997; and Lundberg and Pollak, 1998). Parents also "socialize" children to hold certain expectations and preferences
(Easterlin, 1980; Henretta, 1984; and Bisin and Verdier, 1998). 
It is reasonable to posit that financial behavior and other ownership patterns (housing for example) can be shaped by
the family. Whether an individual has been exposed to specific assets by his or her parents will affect asset choice,
through the development or cultivation of asset-specific knowledge that is relevant to the ownership decision. The
expectation is that children of parents who hold a particular asset, say stock, would be more likely to hold stock
themselves (compared to children of non-stock owners). This is because they are likely to have experienced
'learning-by-observing' within the family. Studies of human capital acquisition and labor market participation have found
intergenerational correlation in educational levels and in occupational outcomes (Solon, 1992; and Lam,  1999). Yet the
reason for the generational carry over - direct financial (or time) resources versus knowledge or values supporting
education as a goal - has not been widely investigated by researchers.
This paper finds that there are ownership differences arising from family-based exposure to assets. In establishing this
theoretical and empirical connection the work supports the hypothesis that intergenerational influences appear to
explain some of the differences in asset ownership between African-American and other families.4 Section II presents
our theoretical framework, developing the distinction between transfer of knowledge about assets and the transfer of
assets per se. Section III discusses the data, and section IV presents the empirical findings. The conclusion (Section V)
includes a discussion of the different policy implications that stem from the intergenerational transfer of knowledge
framework and the classic bequest models.
THE THEORETICAL FRAMEWORK
Overlapping generations models, with "families" represented as one parent with one child, and where transfers of
money, inputs to education, or other quantities  transferred from parent to child have been used effectively in certain
settings (Loury, 1981 for example). When contemplating the transfer of asset ownership 'traits', models depicting
family formation in each generation as well as the transmission process from one generation to the next are more
appropriate (Bisin and Verdier, 1998 for example). In this section we present a simple model of the intergenerational
transmission of asset ownership via knowledge, which bears a close resemblance to models used in biology.5 Inheritance
of a given trait may be subject to threshold effects and one trait commonly displaces another.
A Deterministic Model of Intergenerational Transmission 6Consider a simple overlapping generations model in which each individual lives for two periods: childhood and adulthood.
Also consider an individual asset of type "j". For initial conditions, let  
Equation (2) above indicates that individuals may have a range of experiences in terms of the types of family
backgrounds, and in the likelihood of having exposure to the asset "j" accordingly. While the standard
one-parent/one-child models that often are used to analyze intergenerational transfers offer no consideration of
spousal matching, as evident in equations (2) and (1), our simple framework incorporates the effect of the family
formation process on exposure rates and ultimate asset-ownership in the economy.
Under assortative mating, the frequencies associated with the different marriage types also will depend upon the
fraction of the population that chooses partners like them. Because the case of random mating can be shown to be a
simple sub-case of the model with assortative mating, our analysis proceeds by developing a generalized model for
assortative mating.
Determination of the Equilibrium Rate of Asset-Ownership in the Economythis, we could expect universal ownership of some assets. Such a situation could be formalized as high pi regardless of
family background type. We now turn to consideration of the specific manner in which information acquired from
parents affects the asset ownership decision.
The Relevance of Knowledge Gained at Home
SAMPLE CONSTRUCTIONhousehold. Of the weighted sample households, 14.8% are African-American. The majority of households in the sample
are headed by males (77.1%), but the sample is almost evenly split between married and unmarried households (51.6%
married and 48.4% unmarried). For data on the "financial family background" of this young family sample: A large
percentage of the sample had parents who owned bank accounts in 1984. Eighty percent of households were in this
category. Additionally, 32.6% of the sample had parents who held stock.
Descriptive data indicate an intergenerational correlation in asset-ownership. Table 1 presents data comparing bank
account and stock ownership rates for two different generations of families using data from the PSID. The data reveal
that, regardless of race, young adults whose parents held bank accounts were more likely to hold bank accounts than
young adults whose parents did not own a bank account. A similar result holds for stocks; almost twice as many young
adults whose parents held stocks went on to own stocks as the proportion of young adults whose parents did not own
this particular financial asset. The Pearson correlation coefficient between parents' and children's asset-ownership is
0.28 for bank accounts and 0.20 for stocks. 
Beyond differences in parental asset-ownership among young families, there are also differences in asset ownership by
race. Non-black families are more than twice as likely to hold a bank account as African-American families, and the rate
of stock ownership for African Americans is only about one-third of the rate of stock ownership for non-black families
(Table 2). In addition to the gap in participation rates in financial markets, African-American families possess lower
bank balances and lower stock balances than other families, on average. Table 3 indicates that there are also race
differences in parental ownership of financial assets. The percentage of African-American households whose parents
owned bank accounts was about half the percentage of non-black households whose parents owned bank accounts
(42.7% compared to 86.5%). Similarly, for stocks, fewer young African-American families had parents who owned stock
(16.2% compared to 35.5%). 
Table 1. Young Families' Asset Ownership, 1994--by Parents' Ownership Status
Percentage of
young families
owning bank
accounts or
stocks
Mean
holdings
Mean
holdings
conditional
on holding
Bank account ownership
Stock ownership
Table 2. Asset Ownership among Young Adult Families, 1994--by Race 1Asset Proportion
holding
accounts
Average
balances held
Average balances
conditional upon
holding
Bank account ownership
Stock ownership 
Table 3. Race Differences in Parental Asset Ownership among Young Adult Families, 1994
--Percentage of Families Whose Parents Held Bank Accounts or Stock Balances
Asset Yes  No
Parental account ownership
Parental stock ownership
EMPIRICAL OWNERSHIP PATTERNS ACROSS GENERATIONS
Cross-Generational Asset-Ownershipmore specifically. Each of these six variables is standard in the literature analyzing wealth accumulation (e.g. Menchik
and Jianakoplos, 1997; and Blau and Graham, 1991). 
We estimate a variant of (10) for each asset using probit regressions. The reduced form equation is,
 
where y=1 if y* > 0
y=0 otherwise,
and y denotes observed values of the dependent variable while y* represents an unobservable, which determines
whether the asset in question is obtained (in which case we observe y=1) or whether it is foregone (in which case we
observe y = 0). Age represents the age of the household head, G represents gender, M represents marital status, I
represents income, E represents education, R represents race, P represents parental ownership of the asset under
investigation. B represents bequests, and it is added to limit the possibility that asset-ownership by parents and their
young adult children are connected by the simple effect of receiving assets from one's parents. Our interest is to
disentangle this direct effect from that of transferring asset specific knowledge.
Ownership Equationssources. This appears to matter. The inclusion of interaction terms indicates that educational attainment can offset
the importance of parental asset-ownership in the case of stock ownership. Column 3 of Table 5 (model III) reveals that
the education interaction term has a negative sign, implying that rising educational opportunities can attenuate the
influence of limited financial learning in a young adult's family of origin. 
Having established that the parental ownership effect initially found in simple correlations persists even after
controlling for economic and socio-demographic variables that affect asset-ownership, and that the effect is
numerically interesting, we examine the effects at the median. The nonlinearity of the probit model implies that the
effects of any regressor are not constant across all levels of the independent variables. While it is standard to report
effects of the independent variable evaluated at the mean, as was done earlier, we compute median effects as well, as
a check on robustness of our result. Table 5 contains these results. 
The size of the marginal effects for parental asset ownership assessed at the median values of the explanatory
variables are similar to those computed at the mean. For bank accounts the difference between the marginal effect of
parental account ownership at the mean compared to the median is a 6 percent increase in the probability of account
ownership compared to a 4 percent increase. For stock ownership, the effects of parental asset ownership are even
closer -- 9.7 percent compared to 10.3 percent as the increase in the probability of stock ownership that is associated
with having parents who owned stock. For the model with the education interaction term (model III in Table 5), the
effects for race, parental stock ownership, and the interaction between education and parents' stock-holding are nearly
indistinguishable when comparing the results for regressions at the mean and regressions evaluating the marginal
effects at the median.
Two-Stage Estimation Results -- Stock Ownership and Wealthmatrix based on Maddala (1997).
Wealth is generally not statistically significant in determining stock ownership. (See table 7.) More precisely, when we
run the basic model (minus age terms and number of children), and models with an education or an income interaction
term, no evidence is found to support the hypothesis that stock ownership is contingent upon being wealthy, and
parental stock-ownership continues to have an effect.
The Relationship Between Stock Balances and Parental Stock Ownership
size
Potential Measurement Error Issues Due to the Nature of the PSID DataCONCLUSION
Table 4. Probit Regressions Predicting Bank Account Ownership, 1994Variable Standard probit regression: 
Marginal effects
Marginal effects
at the median 
Table 5. Probit Regressions Predicting Stock ownership, 1994Variable Standard probit regression
Marginal effects
Marginal effects at the
median
Model I Model II  Model III Model II Model III
Table 6. Characteristics of families at the different quartiles, 1994Variable 25TH Percentile Median 75TH Percentile
Age of head 29 32 37
Number of children 0 1 2
Race White White White
Gender of head Male Male Male
Marital status Unmarried Married Married
Education High school degree 13 years of schooling College educated
Average labor income $20,000 $34,000 $52,000
Bequest None None None
Table 7. Probability of Stock Ownership, 1994: Two-Stage Estimates
Variable Marginal
effect
Test-statistic Standard
error
Amemiya
corrected
standard
error
Marginal
effect
Test-statistic Standard
error
Amemiya
corrected
standard
errorresults; parental stock ownership remains statistically significant, and the size of its estimated marginal effect remains similar.
Table 8. Regression Explaining Stock Balances (in $10,000)--Tobit Regression Results
Variable Coefficient Coefficient Coefficient
Table A-1. Selected Characteristics of the Households in Our Sample, 1994Variable Mean or
Proportion
Socio-economic and Demographic 
Wealth attributes
Family background--Parental asset
ownershipStandard errors in parentheses. All data are weighted using the 1994 PSID weights.
All dollar figures are in 1996 dollars
Figure 1. Possible shapes of the G-function
(Assortative or Random mating)
Figure 2. Determination of steady-state equilibrium
Possible shapes for G-function under the special case of p4=0
Assortative matingFigure 3. Determination of steady-state equilibrium
Possibilities for shape of G-function under special case of p1=1
Assortative mating
Figure 4. Determination of steady-state equilibrium
Possible shapes of the G-function under special case of p4=0 and p1=1
Assortative mating 
Figure 5. Determination of steady-state equilibrium
Possible shapes of the G-function for special case of p1=1
Under Random mating
 
Figure 6. Determination of steady-state equilibrium
Possible shapes of the G-function for the special case of p4=0
Under Random mating
MATHEMATICAL APPENDICES
Appendix--A1
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"Asset Ownership Across Generations"

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"Asset Ownership Across Generations"

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