Novel data reveals education's impact on household investment risk and returns
A new Banque de France working paper introduces a novel dataset combining security holdings and household finance data. It reveals a robust link between higher education levels and increased investment returns and risk tolerance.
Education shapes portfolio risk and returns
Researchers from the Banque de France and partner institutions have developed a novel dataset by combining granular financial asset information from the Security Holdings Statistics (SHS) with household characteristics from the Household Finance and Consumption Survey (HFCS).
This augmented dataset allows for a detailed analysis of how households' investment returns and risk exposures vary both between and within countries.
The study illustrates its potential by examining the relationship between education levels and investment outcomes.
It finds a robust link where more educated households exhibit higher portfolio returns and a greater tolerance for risk.
These households structure their portfolios to realize larger gains during periods of positive risk, though they are also more susceptible to losses in challenging times.
The findings, initially demonstrated through an Ireland case study, are consistently observed across a panel of euro area countries and remain robust to various conditioning factors and macro-financial controls.
Bridging the data gap for policy insights
The paper addresses a significant gap in existing literature, which largely analyzes financial asset holdings at an aggregate country level, leaving household-specific heterogeneity less understood.
This gap persists due to limited access to detailed household financial investment data, particularly for cross-country comparisons within the euro area.
The novel methodology developed in this paper bridges this by matching country-level valuation and risk measures from the SHS to individual household portfolios in the HFCS.
This disaggregated information is crucial for researchers and policymakers to identify emerging risks, comprehend how financial shocks propagate across different household types, and design effective policies that support both household welfare and overall financial stability.
The insights are particularly relevant for current European policy debates, such as the Savings and Investments Union (SIU) initiative, which aims to boost capital market participation and financial literacy.
A powerful new lens
This groundbreaking dataset offers an unprecedented granular view into household financial behavior, moving beyond aggregate analyses to reveal critical micro-level dynamics.
While confirming expected correlations like wealth and risk tolerance, its true value lies in enabling targeted policy interventions for financial literacy and stability.
The methodology sets a new standard for understanding household finance, providing a robust foundation for future research and evidence-based policymaking.