Wealth, Savings, and Returns Over the Life Cycle : The Role of Education

This paper studies the effect of education on wealth and wealth accumulation over the life cycle. The analysis relies on an administrative panel that reports educational attainment and detailed information on assets and liabilities of Swedish residents. To identify the causal effect of education, I employ three alternative identification strategies which rely on controlling for predetermined family background and ability, within-siblings variation in educational attainment, and a compulsory schooling reform. I find that education has a positive, large, and long-lasting effect on net worth. I further show that it affects all balance sheet components and that these effects vary over the life cycle. Finally, I document that the differences in wealth are driven by both higher savings and higher portfolio returns among the more educated, although their relative importance varies over time. My results have implications for theoretical work on optimal consumption-saving behavior and portfolio choice, as well as for fiscal and social security policy. Overall, the findings suggest that considering only wage returns to education greatly understates its economic implications