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Does Home Ownership Crowd Out Investment in Children's Human Capital?

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  • FORNERO Elsa
  • ROMITI Agnese
  • ROSSI Cristina

Abstract

Parents can adopt two strategies to take care about their children and their future life: they can invest in their human capital, or in real (and financial) wealth to bequeath to them. The optimal children’s endowment is assured in equilibrium by complete and perfect markets. However, in the real world markets are far from being perfect and the investment in real or financial wealth can ultimately displace the human capital’s one. A strong preference for home ownership makes parents inclined to consider the house as the typical bequest-friendly asset, even at the expense of children’s education. Misconceptions about the relative returns of the two different forms of wealth, with a perceived excessive premium from the returns from housing wealth, may also be at work. We argue that this scenario could be well represented by the Italian context. Therefore we analyze the possible trade off between (children’s) human and (inherited) real capital by using the Bank of Italy’s Survey of Household Income and Wealth (SHIW). Our evidence seems to confirm our hypothesis, and in particular the results are higher for the women’s sample.

Suggested Citation

  • FORNERO Elsa & ROMITI Agnese & ROSSI Cristina, 2013. "Does Home Ownership Crowd Out Investment in Children's Human Capital?," LISER Working Paper Series 2013-21, Luxembourg Institute of Socio-Economic Research (LISER).
    • Handle: RePEc:irs:cepswp:2013-21
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    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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