Early Life Conditions and Financial Risk-Taking in Older Age
42 Pages Posted: 30 May 2011 Last revised: 26 May 2020
Date Written: November 6, 2012
Using life-history survey data from eleven European countries, we investigate whether childhood conditions, such as socioeconomic status, cognitive abilities and health problems influence portfolio choice and risk attitudes later in life. After controlling for the corresponding conditions in adulthood, we find that superior cognitive skills in childhood (especially mathematical abilities) are positively associated with stock and mutual fund ownership. Childhood socioeconomic status, as indicated by the number of rooms and by having at least some books in the house during childhood, is also positively associated with the ownership of stocks, mutual funds and individual retirement accounts, as well as with the willingness to take financial risks. On the other hand, less risky assets like bonds are not affected by early childhood conditions. We find only weak effects of childhood health problems on portfolio choice in adulthood. Finally, favorable childhood conditions affect the transition in and out of risky asset ownership, both by making divesting less likely and by facilitating investing (i.e., transitioning from non-ownership to ownership).
Keywords: Portfolio Choice, Childhood, Socio-economic Status, Cognition, Health, Financial Risk
JEL Classification: G11, D14, E21, J13, C23, C25
Suggested Citation: Suggested Citation