Camelia Kuhnen, Andrei Mui

The majority of lower socioeconomic status (SES) households in the U.S. and Europe do not have any stock investments, which is detrimental to wealth accumulation. Here, we examine one explanation for this puzzling fact, namely, that economic adversity may influence how people learn from financial information. Using experimental and survey data from the U.S. and Romania, we find that lower SES individuals form more pessimistic beliefs about the distribution of stock returns and are less likely to invest in stocks. SES shapes people's beliefs about stocks, leading to large differences across households in their propensity to participate in financial markets.

JEL Codes  
D14: Personal Finance
D84: Expectations; Speculations
G11: Portfolio Choice; Investment Decisions
socioeconomic status
household finance
stock market participation