Financial Risk-taking and Differential Bargaining Power within Households

Using Dutch survey data from 2002 to 2018, we examine whether inequality of amounts held in bank accounts (both checking and saving) within couples affects financial risk-taking. Using both ordinary least squares and panel data methods, we find that such inequality is associated with a reduced propensity to invest in stocks directly held and/or mutual funds. Specifically, an increase by 10 percentage points in the maximum (across the two partners) share of bank accounts is associated with a drop in the probability to invest in risky financial assets by about 1 percent. The results suggest that higher economic inequality between the two partners likely leads to increased insecurity and thus to a desire to de-risk the household’s financial portfolio. This in turn implies that in times of financial distress, such as the one caused by the coronavirus crisis, adverse economic outcomes such as job and income losses could lead households to a financially detrimental withdrawal from financial markets.