In this paper I study the effect of changes in the value of parental housing wealth during children’s teenage years on the parental and children’s financial outcomes and consumption patterns later in life. Increases in the value of home equity when children are teenagers affect the parents’ ability to finance children’s further education as well as other expenditures. In particular, appreciating house prices increase the value of housing equity, which in turn can increase parental investment in their children’s education due to a “wealth” effect, or because the value of their collateral to be used for financing college debt has increased. 

By using parental and their children’s demographic and financial information from the Panel of Income Dynamics (PSID), I investigate how increases in the housing value just before children turn 18, affect their indebtedness levels later in life, their likelihood of purchasing a house and their predominant choice of financing house purchases, as well as their consumption choices. In particular, I study whether these intergenerational wealth transfers operate through relaxation of financing constraints (the collateral channel), or through increases in wealth (the wealth channel).