Does Home Ownership Crowd Out Investment in Children's Human Capital?

24 Pages Posted: 28 Feb 2012

See all articles by Elsa Fornero

Elsa Fornero

University of Turin (Italy) - Department of Economics and Statistics; Center for Research on Pensions and Welfare Policies (CeRP); Netspar

Agnese Romiti

Government of the Federal Republic of Germany - Institute for Employment Research (IAB)

Maria Christina Rossi

University of Turin

Date Written: November 1, 2011

Abstract

Parents generally care for their kids, either for altruistic or for strategic reasons. To secure them a better life than their own, they can invest in the children's human capital or accumulate real wealth to bequeath to them. In equilibrium, with complete markets and no imperfection, the marginal returns from the two strategies are equalized, an optimal distribution of children's endowment between human and financial (real) wealth is reached and no crowding out occurs. In the real world, with incomplete and imperfect markets, a displacement can occur. A strong preference for home ownership makes parents inclined to consider the house as the typical bequest-friendly asset, even at the expense of children's education. Misperceptions of the relative returns of the two different forms of wealth, with a perceived excessive premium of the returns from housing wealth, may also be at work. We consider this picture to be highly representative of the Italian situation and analyze the possible trade off between (children's) human and real capital by using the Bank of Italy's Survey of Household Income and Wealth (SHIW). Our evidence points in the direction of confirming our hypothesis.

Keywords: Education, bequests, parental investment

JEL Classification: D10, D91, I21

Suggested Citation

Fornero, Elsa and Romiti, Agnese and Rossi, Maria Christina, Does Home Ownership Crowd Out Investment in Children's Human Capital? (November 1, 2011). Netspar Discussion Paper No. 11/2011-115, Available at SSRN: https://ssrn.com/abstract=2012365 or http://dx.doi.org/10.2139/ssrn.2012365

Elsa Fornero

University of Turin (Italy) - Department of Economics and Statistics ( email )

Via Po, 53
Torino, 10124
Italy
+39-011-6706076 (Phone)

Center for Research on Pensions and Welfare Policies (CeRP)

Via Real Collegio, 30
Moncalieri, Turin
Italy

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Agnese Romiti

Government of the Federal Republic of Germany - Institute for Employment Research (IAB) ( email )

Regensburger Str. 104
Nuremberg, 90478
Germany

Maria Christina Rossi (Contact Author)

University of Turin ( email )

Torino
Italy

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