Estimating the Impact of Local Conditions on Asset Preferences in Adulthood

In this paper, I quantify the impact of state-level macroeconomic conditions during childhood on investment decisions in adulthood. The use of intertemporal withinstate variation allows me to control for potentially confounding unobservable national conditions. Unlike previous research that uses national aggregates, I find a significant effect of childhood macroeconomic conditions on investment decisions. This effect is much larger for those who grew up during the Great Depression. Children who grew up in states with lower average personal income invest less in risky assets throughout their lives, have higher levels of home equity, and are less likely to be self employed. Financial conditions during the teenage years have the largest impact on investment in adulthood. I provide evidence using the Panel Study of Income Dynamics, the Survey of Income and Program Participation, and the Health and Retirement Study. JEL classification: D03, D14, D83, D84, E21, G11.