Household Finance Over the Life-Cycle: What Does Education Contribute?

46 Pages Posted: 17 Nov 2014

See all articles by Russell Cooper

Russell Cooper

University of Texas at Austin - Department of Economics; National Bureau of Economic Research (NBER)

Cara McDaniel

Peking University - Guanghua School of Management

Date Written: November 2014

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 cost of stock market participation and portfolio adjustment costs, are estimated to match the financial decisions of 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.

Suggested Citation

Cooper, Russell W. and McDaniel, Cara, Household Finance Over the Life-Cycle: What Does Education Contribute? (November 2014). NBER Working Paper No. w20684. Available at SSRN: https://ssrn.com/abstract=2526039

Russell W. Cooper (Contact Author)

University of Texas at Austin - Department of Economics ( email )

Austin, TX 78712
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Cara McDaniel

Peking University - Guanghua School of Management ( email )

Peking University
Beijing, Beijing 100871
China

Register to save articles to
your library

Register

Paper statistics

Downloads
8
Abstract Views
178
PlumX Metrics