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

Author

Listed:
  • Russell Cooper

    (Pennsylvania State University)

  • Guozhong Zhu

    (University of Alberta)

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. (Copyright: Elsevier)

Suggested Citation

  • Russell Cooper & Guozhong Zhu, 2016. "Household Finance over the Life-Cycle: What does Education Contribute?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 20, pages 63-89, April.
  • Handle: RePEc:red:issued:14-318
    DOI: 10.1016/j.red.2015.12.001
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    References listed on IDEAS

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    Cited by:

    1. Boshara, Ray & Emmons, William R. & Noeth, Bryan J., 2015. "The Demographics of Wealth - How Age, Education and Race Separate Thrivers from Strugglers in Today's Economy. Essay No. 2: The Role of Education," Demographics of Wealth, Federal Reserve Bank of St. Louis, issue 2, pages 1-28.
    2. repec:psc:journl:v:9:y:2017:i:2:p:137-172 is not listed on IDEAS

    More about this item

    Keywords

    Household finance; Life-cycle choices; Role of education;

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E27 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Forecasting and Simulation: Models and Applications
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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