Working Paper: NBER ID: w19455
Authors: Russell Cooper; Guozhong Zhu
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 education attainment regarding stock market participation, the stock share in wealth, the stock adjustment rate and 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 matters through two channels: the mean of income and the discount factor.
Keywords: Household finance; Education; Portfolio choice; Permanent income
JEL Codes: D14; E21; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| education level (I24) | financial choices (G50) |
| education level (I24) | stock market participation (G10) |
| education level (I24) | wealth-to-income ratios (D31) |
| education level (I24) | stock adjustment rates (E43) |
| education level (I24) | mean level of income (D31) |
| education level (I24) | discount factor (H43) |
| mean level of income (D31) | financial choices (G50) |
| discount factor (H43) | financial choices (G50) |