Post-compulsory education of children and household asset allocation

Abstract

We investigate the impact of Post-compulsory Education (PCE) on household asset allocation in this paper. As an investment in children's development, families face a trade-off between PCE and other assets. Based on the data from six representative rounds of the China Household Finance Survey (CHFS), we conduct extensive empirical analyses and find that households with children in the PCE stage, such as senior high schools or universities, exhibit lower proportions of illiquid assets and high-risk assets. We further show that liquidity constraints and expectations of future income are two basic mechanisms through which PCE affects household asset allocation, and the former is relatively stronger. In the heterogeneity analyses, we find that the impact of PCE on family asset allocation is more pronounced in families where parents have educational attainment below the university degree, in families with male children, in rural households, and in families that value education.