Do Parents Live It Up When Children Fly the Coop?

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Using data from the Health and Retirement Study (HRS) Consumption and Activities Module (CAMS), this paper investigates the impact of children leaving home on household consumption. We estimate an econometric model in which the dependent variable is the change in the log of either household or per-capita consumption over a four-year period. The "treatment" of having kids leave home is compared with two "control" groups, those whose kids never left home, and those who did not have resident kids at baseline.nWe find that the impact on total household non-durable consumption of kids leaving home is small and not significantly different from zero. In contrast, per-person consumption increases by approximately 50 percent. These two facts together suggest that households do not decrease their spending once children are no longer dependent, but instead increase their own consumption. We also find that households that have a child leave home increase per-capita expenditure on housing, but consumption of household services remained unchanged at the household level. This is expected, since housing expenses mainly comprise items that are a function of house size, not of the number of occupants, and households rarely downsize when their kids leave home. nThe above findings have important policy implications. First, households that save little when they are young, do not automatically catch up on their savings late in life. Second, if households choose to enjoy an increase in their standard of living when their kids leave home, and want to maintain that increased standard of living in retirement, they will need greater wealth than if their goal were simply to maintain the lower standard of living enjoyed while the kids were at home.