The paper begins by considering whether the standard model of household consumption and saving decisions, the Life Cycle model, provides an adequate description of the behavior of wealthy households. I argue that the Life Cycle model, or at least the traditional incarnation in which the decision-maker saves mainly to finance his own future consumption, cannot simultaneously explain both the behavior of the median household and the behavior in the upper tail of the wealth distribution. The next section of the paper considers whether a “Dynastic” model, in which the wealthy save mainly for the benefit of their heirs, performs better.
While the Dynastic model can explain some observations, and probably does roughly apply to some households, 1 argue that it still does not explain some important facts about the saving behavior of the wealthy. Furthermore, the Dynastic model conflicts with the self-reported motives for saving that many wealthy people voice. Finally, I consider a model in which the wealthy save because, either directly or indirectly, they obtain greater pleasure from possessing an extra dollar of wealth than they would get from an extra dollar of consumption. Following Max Weber (1958) as interpreted by Zou (1994) and Bakshi and Chen (1996), I call this the “Capitalist Spirit” model. I argue that a direct wealth accumulation motive is indispensable in explaining at least some of the observed behavior of the very wealthy.