Household Finance over the Life-Cycle: What does Education Contribute?

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. Abstract This paper studies household financial choices: why are these decisions dependent on the education level of Russell Cooper Department of Economics

Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets

“…One channel, emphasized by Cooper and Zhu (2014), is that education increases earnings and, hence, leads to greater risky market participation. This could be because higher stable return to human capital can partially substitute for bond holding, or perhaps because the fixed costs of investment decrease with earnings.…”

“…Hastings et al (2013) provide a survey of the literature on the relationship between financial literacy and financial outcomes. Cooper and Zhu (2014) adopt yet another approach and use U.S. data to estimate a structural life-cycle model of the relationship between education and risky market participation.…”

The Impact of Medical Insurance on Household Stock Market Participation: Evidence From China Household Finance Survey

“…Second, social factors such as risk attitudes, social capital, social network, and social interaction should be considered by households participating in the stock market ( 3 – 5 ). Then, demographic and household characteristic variables such as age, gender, marital status, population size, demographic structure, education level, income level, and wealth status have gradually been incorporated into the influence factors of the household stock market participation with the popularization of microsurvey data ( 6 – 8 ). Besides, financial knowledge and financial literacy, which affect the ability of decision-makers to identify and analyze financial asset information, are also important factors that affect household asset allocation.…”

Proximal Relationship between Financial Access and Completed Educational Level in India

“…Existing literature on role of education spreads to varieties of areas namely role of education on financial literacy, financial outcomes, financial choices and livelihoods. Russell Cooper and Guozhong Zhu (2014) through lifecycle model assessed that education affects household finance through increased average income. They have also provided evidences on education specific differences in income risks, medical expenses and mortality risks.…”