Student Debt and Stock Market Participation
46 Pages Posted: 9 May 2016 Last revised: 2 Oct 2018
Date Written: March 1, 2016
Using household data from the Survey of Consumer Finances, we find that student debt negatively affects future investment in high return, risky financial assets, utilizing exogenous shocks to student loans and its bankruptcy treatment, to establish causation. We show that student loans negatively impact future portfolio risk-taking by students already in four-year colleges at the time of the regulatory changes that lead to these exogenous shocks. This negative relation gets stronger for financially constrained households. Our evidence indicates that student debt reduces early investment in high return assets, negatively affecting the long-term net-worth and wealth creation of households.
Keywords: Student debt, portfolio risk, Household Net Worth; Stock Market Participation
JEL Classification: G30, I22
Suggested Citation: Suggested Citation