Does Home Ownership Crowd Out Investment in Children's Human Capital?

Abstract:     
Parents generally care for their kids, either for altruistic or for strategic reasons. To secure them a better life than their own, they can invest in the children's human capital or accumulate real wealth to bequeath to them. In equilibrium, with complete markets and no imperfection, the marginal returns from the two strategies are equalized, an optimal distribution of children's endowment between human and financial (real) wealth is reached and no crowding out occurs. In the real world, with incomplete and imperfect markets, a displacement can occur. A strong preference for home ownership makes parents inclined to consider the house as the typical bequest-friendly asset, even at the expense of children's education. Misperceptions of the relative returns of the two different forms of wealth, with a perceived excessive premium of the returns from housing wealth, may also be at work. We consider this picture to be highly representative of the Italian situation and analyze the possible trade off between (children's) human and real capital by using the Bank of Italy's Survey of Household Income and Wealth (SHIW). Our evidence points in the direction of confirming our hypothesis.

Number of Pages in PDF File: 24

Keywords: Education, bequests, parental investment

JEL Classification: D10, D91, I21

working papers series