Uncertainty, Health, Wealth, and Wealth Transfers

Jinkook Lee, Ohio State University

The dualities of bequest motives are proposed, positing that bequest motives can be altruistic, strategic, or both, and that both precautionary and bequest motives can co-exist. Based on this multi-motive approach, it is posited that a parent makes trade-offs between consumption, savings, and wealth transfers under uncertainty about future income and consumption needs. The relative strength of each of these motives varies systematically across different levels of wealth, income, and other determinants of consumption, savings, and wealth transfers. Based on this framework, the key determinants of wealth transfer, including one's probabilistic judgments associated with future income and consumption needs, health status, the economic resources of parents and children, and the needs for informal care are examined, using the 2000 Health and Retirement Study. It is demonstrated that precautionary, altruistic, or strategic motives can all govern one's current and future transfer decisions, although only one motive is effective at margin.