Open Collections

Gomez Cardona, Sebastian

University of British Columbia

Chapter 2 documents empirical facts about household portfolios, fertility and financial literacy. Using variation in fertility and distinguishing between planned and unplanned children, I study how households adjust their portfolios around childbirth. The results show that households with planned children increase the share of illiquid assets (housing) in their portfolios, while those with unplanned children tilt their portfolios towards liquid assets. Financial literacy and wealth are strongly related to the speed of such adjustments. For poorer households, financial literacy delays the adjustment toward housing while it accelerates such adjustment for those in the middle of the wealth distribution. Among richer households, there is no difference between financially literate and illiterate ones. In Chapter 3, I develop a life-cycle model that replicates the patterns described in Chapter 2. I compare how households with different financial literacy levels respond to similar shocks, and I show that higher financial literacy is associated with smoother portfolio adjustments following a shock onset. All else equal, the more financially literate households appear less susceptible to the detrimental effects of liquidity constraints and the impact of portfolio adjustment costs. The interaction between liquidity constraints and financial literacy plays a key role in the model, as it explains the differential speed and direction of portfolio adjustments observed in the data. Counterfactual exercises show that financial literacy mitigates the negative welfare effects of unexpected fertility shocks by at least 20%. In Chapter 4, we study the accumulation of financial competencies in a model of dynamic skill formation. We find evidence of complementarities between financial literacy, wealth and risk attitudes. Risk tolerance and wealth facilitate experimentation and learning-by-doing. Latent risk attitudes and financial literacy are unevenly distributed across households and do not align with general human capital. Linking estimates with data on household portfolios, we show that early-life differences in financial literacy and its accumulation in the life cycle may account for about one-fifth of the standard deviation of wealth by age 60. Dynamic complementarities in skill formation imply that early interventions may reduce later-life inequality while boosting average wealth growth.

Text

2024-07-30

Attribution-NonCommercial-NoDerivatives 4.0 International

http://hdl.handle.net/2429/88735

Economics

University of British Columbia

UBCV

http://creativecommons.org/licenses/by-nc-nd/4.0/