We study how fatal and nonfatal health shocks affect households’ ability to meet their financial obligations. We find that fatal shocks substantially increase the likelihood of default and that housing wealth plays a key role as a self-insurance mechanism. Surviving spouses who experience the largest income losses are more likely to sell their homes, and those without housing wealth face a sharply higher risk of debt collection. In the most financially vulnerable families, these shocks even generate intergenerational spillovers. In contrast, nonfatal health shocks lead to only modest increases in default risk. Taken together, our findings suggest that strengthening survivors’ benefits for households with limited resources could improve welfare across generations.

This article studies how cultural heritage influences the differences in risk taking in financial markets. We combine data on the asset allocation of second-generation immigrants in Sweden with risk-taking culture in their parents’ countries of origin. We find that descendants of risk loving cultures are more likely to participate in equity markets, and, conditional on participation, allocate a larger share of financial wealth to equities. Moreover, they take on more idiosyncratic risk by favoring directly held stocks over mutual funds and forming more volatile portfolios. These findings are not driven by selective migration or other country of origin characteristics.

This paper employs Swedish data on households' stock holdings to investigate how consumption responds to changes in stock market returns. We instrument the actual capital gains and dividend payments with past portfolio weights. Unrealized capital gains lead to a marginal propensity to consume of 23% for the bottom 50% of the wealth distribution and about 3% for the top 30% of the wealth distribution. Household consumption is significantly more responsive to dividend payouts across all parts of the wealth distribution. Our findings are consistent with households treating capital gains and dividends as separate sources of income.

We investigate whether acquiring more primary education has long-term effects on risk-taking behavior in financial markets. Using exogenous variation in education from a compulsory schooling change combined with wealth data for the Swedish population, we estimate the effect of education on stock market participation and on the share of financial wealth invested in stocks, conditional on participation. For men, an extra year of education increases market participation by two percentage points and the share of financial wealth allocated to stocks by 10%. We find suggestive evidence that greater financial wealth is a potential channel through which education increases participation, consistent with the existence of fixed costs. Lower risk aversion is a potential channel through which education increases the stock share. The reform has less effect on female schooling attainment and there is no evidence that this additional education affects women’s asset allocation. There is no evidence of spillovers to children.

Wealth is highly correlated between parents and their children; however, little is known about the extent to which these relationships are genetic or determined by environmental factors. We use administrative data on the net wealth of a large sample of Swedish adoptees merged with similar information for their biological and adoptive parents. Comparing the relationship between the wealth of adopted and biological parents and that of the adopted child, we find that, even prior to any inheritance, there is a substantial role for environment and a much smaller role for pre-birth factors and we find little evidence that nature/nurture interactions are important. When bequests are taken into account, the role of adoptive parental wealth becomes much stronger. Our findings suggest that wealth transmission is not primarily because children from wealthier families are inherently more talented or more able but that, even in relatively egalitarian Sweden, wealth begets wealth. We further build on the existing literature by providing a more comprehensive view of the role of nature and nurture on intergenerational mobility, looking at a wide range of different outcomes using a common sample and method. We find that environmental influences are relatively more important for wealth-related variables such as savings and investment decisions than for human capital. We conclude by studying consumption as an overall measure of welfare and find that, like wealth, it is more determined by environment than by biology.

Has rising import competition contributed to the polarization of US politics? Analyzing multiple measures of political expression and results of congressional and presidential elections spanning the period 2000 through 2016, we find strong though not definitive evidence of an ideological realignment in trade-exposed local labor markets that commences prior to the divisive 2016 US presidential election. Exploiting the exogenous component of rising import competition by China, we find that trade exposed electoral districts simultaneously exhibit growing ideological polarization in some domains, meaning expanding support for both strong-left and strong-right views, and pure rightward shifts in others. Specifically, trade-impacted commuting zones or districts saw an increasing market share for the Fox News channel (a rightward shift), stronger ideological polarization in campaign contributions (a polarized shift), and a relative rise in the likelihood of electing a Republican to Congress (a rightward shift). Trade-exposed counties with an initial majority White population became more likely to elect a GOP conservative, while trade-exposed counties with an initial majority-minority population became more likely to elect a liberal Democrat, where in both sets of counties, these gains came at the expense of moderate Democrats (a polarized shift). In presidential elections, counties with greater trade exposure shifted toward the Republican candidate (a rightward shift). These results broadly support an emerging political economy literature that connects adverse economic shocks to sharp ideological realignments that cleave along racial and ethnic lines and induce discrete shifts in political preferences and economic policy.

Financial investment behavior is highly correlated between parents and their children. Using Swedish data, we find that the decision of adoptees to hold equities is associated with the behavior of both biological and adoptive parents, implying a role for both genetic and environmental influences. However, we find that nurture has a stronger influence on the share of financial assets invested in equities and on portfolio volatility, suggesting that financial risk‐taking is substantially environmentally determined. The parental investment variables substantially increase the explanatory power of cross‐sectional regressions and so may play an important role in understanding cross‐sectional heterogeneity in investment behavior.