Household Portfolio Allocation over the Life Cycle

Abstract

This chapter presents systematic empirical evidence on the basic patterns of household asset allocation over the life cycle. This information can help to evaluate competing models of household portfolio behavior, and more generally to assess proposals for greater reliance on household choices in retirement preparation. Using multiple waves of the Surveys of Consumer Finances, it controls for systematic differences across birth cohorts in the age-specific pattern of asset ownership. The chapter is organized as follows. Section 2.1 describes the Surveys of Consumer Finances and presents summary statistics for each wave of data. Section 2.2 presents the econometric methodology for distinguishing age and cohort effects and analyzes the patterns of ownership and allocation of financial assets. Section 2.3 places the analysis of financial assets within the context of households' comprehensive balance sheets. The final section discusses several implications of the results, as well as directions for further research.

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