Learning to Take Risks? The Effect of Education on Risk-Taking in Financial Markets

We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. Using exogenous variation in education... [ view full abstract ]

We investigate whether acquiring more education when young has long-term effects on risk-taking behavior in financial markets and whether the effects spill over to spouses and children. Using exogenous variation in education arising from a Swedish compulsory schooling change and wealth data for the population of Sweden, we estimate the effect of education on stock market participation and on the share of financial wealth invested in stocks and mutual funds, conditional on participation. For men, we find that an extra year of education increases stock market participation and the share of financial wealth allocated to stocks. Our findings are consistent with greater education leading to lower fixed costs of stock market participation and to lower risk aversion. However, we find no evidence that education increases diversification as proxied by the share of assets allocated to mutual funds. For women, there is no evidence of any effect of education on asset allocation decisions. We also go beyond the direct effect of education on own decisions and look for possible spillovers to family members. However, we find no evidence of spillover effects to the financial decisions of spouses or children.