Household finance over the life-cycle: What does education contribute?

Russell Cooper, Guozhong Zhu

Research output: Contribution to journalArticlepeer-review

10 Scopus citations

Abstract

This paper studies household financial choices: why are these decisions dependent on the education level of the household? A life-cycle model is constructed to understand a rich set of facts about decisions of households with different levels of educational attainment regarding stock market participation, the stock share in wealth, the stock adjustment rate and the wealth-income ratio. Model parameters, including preferences, the costs of stock market participation and portfolio adjustment, are estimated to match financial decisions by different education groups. Based on the estimated model, education affects household finance mainly through increased average income. The estimation also finds evidence that higher educational attainment is associated with a lower stock market entry cost and a larger discount factor. Education specific differences in income risks, medical expenses, mortality risks and the life-cycle pattern of income explain relatively little of the observed differences in household financial choices.

Original languageEnglish (US)
Pages (from-to)63-89
Number of pages27
JournalReview of Economic Dynamics
Volume20
DOIs
StatePublished - Apr 1 2016

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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