Background affects choice of portfolio

There is a relationship between childhood conditions and portfolio choice later in life. It appears that those who grew up in well-to-do households have a preference for financial instruments like stocks and mutual funds, and are not afraid to take risks.

"Childhood socioeconomic status, as indicated by the number of rooms and by having at least some books in the house during childhood, is positively associated with the ownership of stocks, mutual funds and individual retirement accounts, as well as with willingness to take financial risks," according to a working paper by the Centre for Studies in Economics and Finance, which studies how early life events affect adults.

The paper also notes that "superior cognitive skills, especially mathematical abilities, are positively associated with stock and mutual fund ownership".

School performance

"Our findings point to early childhood conditions as one potential answer to the puzzle of why so many households do not invest at all in risky financial assets, a behaviour that is inconsistent with the predictions of standard models of portfolio choice."

In view of the findings, the paper suggests the need to have policy interventions early in childhood to increase a person's ability to enhance their circumstances later in life through sound investment decisions.

"Such interventions should include measures to alleviate conditions associated with low socioeconomic status such as poverty, as well as measures that aim to improve school performance. Doing better at school should in turn lead to higher financial literacy in adulthood, thus making investment in financial assets less daunting and more attractive."