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We document and study international differences in both ownership and holdings of stocks, private businesses, homes, and mortgages among households aged fifty or more in thirteen countries, using new and comparable survey data. We employ counterfactual techniques to decompose observed differences across the Atlantic, within the US, and within Europe into those arising from differences in population characteristics and differences in economic environments. We then correlate the latter differences to country-level indicators. Ownership across the range of the assets considered tends to be more widespread among US households. We document that shortly prior to the current crisis, US households tended to invest larger amounts in stocks and smaller ones in homes, and to have larger mortgages in older age, even controlling for characteristics. This is consistent with the high prevalence of negative equity associated with the current crisis. More generally, we find that differences in household characteristics often play a small role, while differences in economic environments tend to explain most of the observed differences in ownership rates and in amounts held. The latter differences are much more pronounced among European countries than among US regions, suggesting further potential for harmonization of policies and institutions.
Does economic policy uncertainty affect household stockholding? To answer this question we create a novel measure of household exposure to economic policy uncertainty news by combining survey information on the hours a household spends in reading newspapers and the frequency of such news in the popular press during a household’s pre-interview period. After controlling for household fixed effects, month-year fixed effects and time-varying cognitive skills, we find that households with a higher exposure to economic policy uncertainty news are less likely to invest in stocks held directly or through mutual funds. This effect is independent from the market volatility index and household (first-moment) expectations about the stock market index.
Is wider access to stockholding opportunities related to reduced wealth inequality, given that it creates challenges for small and less sophisticated investors? Counterfactual analysis is used to study the influence of changes in the US stockholder pool and economic environment, on the distribution of stock and net household wealth during a period of dramatic increase in stock market participation. We uncover substantial shifts in stockholder pool composition, favoring smaller holdings during the 1990s upswing but larger holdings around the burst of the Internet bubble. We find no evidence that widening access to stocks was associated with reduced net wealth inequality.
Savings accounts are owned by most households, but little is known about the performance of households’ investments. We create a unique dataset by matching information on individual savings accounts from the DNB Household Survey with market data on account-specific interest rates and characteristics. We document considerable heterogeneity in returns across households, which can be partly explained by financial sophistication. A one-standard deviation increase in financial literacy is associated with a 13% increase compared to the median interest rate. We isolate the usage of modern technology (online accounts) as one channel through which financial literacy has a positive association with returns.
Debt-induced crises, including the subprime, are usually attributed exclusively to supply-side factors. We uncover an additional factor contributing to debt culture, namely social influences emanating from the perceived average income of peers. Using unique information from a representative household survey of the Dutch population that circumvents the need to define the social circle, we consider collateralized, consumer, and informal loans. We find robust social effects on borrowing – especially among those who consider themselves poorer than their peers – and on indebtedness, suggesting a link to financial distress. We check the robustness of our results using several approaches to rule out spurious associations and handle correlated effects.