The Effect of Marital Status and Children on Savings and Portfolio Choice

Abstract

This paper investigates the impact of demographic shocks on optimal decisions about saving, life insurance, and, most centrally, asset allocation. We analyze these choices within the framework of a life-cycle model that features exogenous changes in family composition, heterogeneity in lifetime income, and uninsurable fluctuations in earnings and medical costs. Our analysis indicates that marital-status transitions and children can have important effects on optimal household decisions. Widowhood induces sharp reductions in the portfolio shares in stock, and the impact is largest for women and individuals with children. Divorce causes men and women to reallocate their portfolios in different directions; men choose much riskier allocations, while women opt for safer ones. Children play a fundamental role in the optimal portfolio decisions. Men with children, for example, increase their shares in response to divorce by less than half as much as men without children. Comparing our simulation results with panel-data evidence on stockholding from the PSID and the HRS, we conclude that changes in marital status and children matter empirically as well, but not always in the ways that the model predicts.JEL classification: G11; G22; D91; E21; I10; J12 Keywords: Portfolio choice; mortality risk; marital status; precautionary saving; bequests; risk and uncertainty. * Dept. of Economics, Williams College, Williamstown, MA 01267, david.love@williams.edu. I am grateful to Chris Carroll, Michael Palumbo, Maria Perozek, Lucie Schmidt, and two anonymous referees.

Sensation Seeking and Hedge Funds

“…The variables SPORT and MINIVAN may proxy for marital status, which in turn may explain risk (Love () and Roussanov and Savor ()). To control for marital status, we first merge our data with marriage and divorce data that are publicly available for 13 states in the United States .…”

Marriage and other risky assets: A portfolio approach

“…In this paper we are especially interested in those individual characteristics that reflect gender and marital status. Therefore, following the literature on family formation and economic decisions (see Cubeddu and Rios-Rull, 2003;Stevenson andWolfers, 2007 andLove, 2009), we build on the above framework in three steps. First, we introduce a distinction among individuals on the basis of gender.…”

Housing Decision With Divorce Risk

“…Our estimation closely follows Cocco et al. () and Love () and is outlined in more detail in Appendix A.1. The resulting coefficients reported in Table are of a similar order of magnitude as those estimated by Love (), yet reflect that our coefficients are estimated using the PSID data until 2011, thus also covering the recent financial crisis.…”

“…We construct birth rates as in Love (), using fertility data published in a U.S. National Center for Health Statistics report (Mathews and Ventura, , Table , p. 13). The report publishes birth rates by race, education, and marital status for different age brackets.…”

“…For the payment of child support and college costs, we follow the modeling of Love (). We model child support by adopting the income‐sharing formulas prevalent in most U.S. states.…”