Despite an increase in Japan’s household savings rate since 2010s, the number of births and child dependency ratio have been declining, in line with low fertility and aging trends. We investigate the effect of number of children on the household savings rate, a key characteristic of Japan’s demographic structure. Using both a theoretical model and an empirical analysis, we employ panel data from the Japan Household Panel Survey from 2011 to 2019. A fixed effects model, robustness tests, and heterogeneity analysis examined the influence of number of children and child dependency ratio on the household savings rate and mechanisms thereof. Evidently, a decline in number of children has a positive effect on the household savings rate. Further, the effect of this decline on the savings rate varies by the child’s gender, education level, number of children, household income, and family structure, with the most pronounced effect for households with male children, high-school-aged children, four or more children, single-parent households, and low-income households. Moreover, a decline in number of children increases household income and reduces household consumption, particularly education and living costs, thereby increasing the household savings rate. Finally, parents with higher education aspirations for their children tend to invest more in education. Overall, although the decline in number of children may have contributed to the rise in Japan’s household savings rate in the 2010s, this trend is unlikely to persist in the long run. Optimizing childbirth policies and improving birth rates are essential for sustaining Japan’s future economic growth.
TANG et al. (Fri,) studied this question.