Wealth, Savings, and Returns Over the Life Cycle: The Role of Education

114 Pages Posted: 23 Aug 2019 Last revised: 10 Dec 2019

See all articles by Anastasia Girshina

Anastasia Girshina

Swedish House of Finance at Stockholm School of Economics

Date Written: March 1, 2019

Abstract

This paper studies the effect of education on wealth and wealth accumulation over the life cycle. The analysis relies on an administrative panel that reports educational attainment and detailed information on assets and liabilities of Swedish residents. To identify the causal effect of education, I employ three alternative identification strategies which rely on controlling for predetermined family background and ability, within-siblings variation in educational attainment, and a compulsory schooling reform. I find that education has a positive, large, and long-lasting effect on net worth. I further show that it affects all balance sheet components and that these effects vary over the life cycle. Finally, I document that the differences in wealth are driven by both higher savings and higher portfolio returns among the more educated, although their relative importance varies over time. My results have implications for theoretical work on optimal consumption-saving behavior and portfolio choice, as well as for fiscal and social security policy. Overall, the findings suggest that considering only wage returns to education greatly understates its economic implications.

Keywords: Household finance, wealth accumulation, savings, returns, education

JEL Classification: G5, D1, D31, G11

Suggested Citation

Girshina, Anastasia, Wealth, Savings, and Returns Over the Life Cycle: The Role of Education (March 1, 2019). Swedish House of Finance Research Paper No. 19-10, Available at SSRN: https://ssrn.com/abstract=3440282 or http://dx.doi.org/10.2139/ssrn.3440282

Anastasia Girshina (Contact Author)

Swedish House of Finance at Stockholm School of Economics ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

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