NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Household Finance: Education, Permanent Income and Portfolio Choice

Russell Cooper, Guozhong Zhu

NBER Working Paper No. 19455
Issued in September 2013
NBER Program(s):   EFG

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.

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This paper was revised on January 3, 2014

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Document Object Identifier (DOI): 10.3386/w19455

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