Household Finance: Education, Permanent Income and Portfolio Choice
AbstractThis 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, stock share in wealth, stock adjustment rate and wealth-income ratio. The model, including preferences and both participation and portfolio adjustment costs, is estimated to match the asset allocation decisions of different education groups. Using the estimated parameters we argue that education matters for financial decisions mainly through its effect on mean income. We also study the sensitivity of household financial decisions to: (i) government programs that support consumption floors and (ii) changes in reimbursement for medical expenditures.
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Bibliographic InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19455.
Date of creation: Sep 2013
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Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Find related papers by JEL classification:
- D14 - Microeconomics - - Household Behavior - - - Personal Finance
- E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-09-26 (All new papers)
- NEP-DGE-2013-09-26 (Dynamic General Equilibrium)
- NEP-EDU-2013-09-26 (Education)
- NEP-MAC-2013-09-26 (Macroeconomics)
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