This paper seeks to understand one important Chinese “savings puzzle” - the elevated
savings rates of the young relative to the middle-aged. This was first documented in Chamon and
Prasad (2010), who showed, using combined sets of annual Urban Household Surveys covering
the period 1986-2005 for 10 provinces and correcting for period and cohort effects, that savings
rates for 25-40 year-olds were as high as or higher than those for the middle-aged. This pattern is
at odds with the standard life-cycle savings model, which implies that relative savings rates
should be low for the young, whose incomes are expected to rise over the life-cycle (Japelli and
Modigliani, 2005). The data on household savings used by Chamon and Prasad, and almost all
other researchers examining Chinese savings at the micro level, however, do not actually
represent the life-cycle pattern of savings for individuals or couples because of another important
phenomenon - the high co-residence rates of the young with their parents. Co-residence of
young adults and their parents is common and on the rise in many developing countries. And in
urban China, among males aged 25-35, over 25% are still co-residing with at least one parent
(2005 Chinese mini census).1
Because of the aggregation of savings within households,
household savings will reflect co-residence choices, which also have distinct age-patterns.