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