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RFS Advance Access published online on April 7, 2009
Review of Financial Studies, doi:10.1093/rfs/hhp020
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© The Author 2009. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oxfordjournals.org.

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

David A. Love
Department of Economics, Williams College

Send correspondence to David A. Love, Department of Economics, Williams College, Williamstown, MA 01267; telephone: 413-597-4473, fax: 413-597-4045. E-mail: david.love{at}williams.edu.

JEL Classification: G11, G22, D91, E21, I10, J12


  Abstract

This paper investigates the impact of demographic shocks on optimal decisions about saving, life insurance, and, most centrally, asset allocation. The analysis indicates that marital-status transitions can have important effects on optimal household decisions, particularly in the cases of widowhood and divorce. Children also play a fundamental role in portfolio choice; in addition to leading to substantially different average allocations, they also have strong interaction effects with changes in marital status. Panel data evidence on stockholding suggests that changes in marital status and children matter empirically as well, but not always in the manner that the model predicts.

I am sincerely grateful for the constructive comments of two anonymous referees and Raman Uppal, the editor. In addition, I thank Chris Carroll, Ken Kuttner, Michael Palumbo, Maria Perozek, and Lucie Schmidt for helpful comments and discussion. All errors are my own.


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