Financial Independence Daily FI discussion thread - May 07, 2020 |
| Daily FI discussion thread - May 07, 2020 Posted: 07 May 2020 01:06 AM PDT Please use this thread to have discussions which you don't feel warrant a new post to the sub. While the Rules for posting questions on the basics of personal finance/investing topics are relaxed a little bit here, the rules against memes/spam/self-promotion/excessive rudeness/politics still apply! Have a look at the FAQ for this subreddit before posting to see if your question is frequently asked. Since this post does tend to get busy, consider sorting the comments by "new" (instead of "best" or "top") to see the newest posts. [link] [comments]  |
| Genetic Ability, Wealth and Financial Decision-Making Posted: 07 May 2020 10:12 AM PDT I'm a graduate student and recently came across a paper I thought might be of interest to sub. Feel free to remove if it is too far afield. The published paper is behind a paywall but there is a working paper version of it available for free. Working Paper For those looking for a summary, I'll do my best here. Social scientists have recently been studying the association between genetics and behavior. It turns out there are combinations of genes (referred to as polygenic risk scores) that are stronly associated with a variety of behaviors including smoking, fertility and educational attainment. This paper looks at the genetic score for educational attainment and how it is associated with wealth among survey respondents who provided a genetic sample in the Health and Retirement Survey. First, the authors find that a one SD increase in education polygenic score is associated with a 25% ($177k) increase in wealth. Not surprising since individuals with a high education polygenic score tend to attain more education. However, controlling for both education and income only reduces the size of the associated by half. People with a high education polygenic score are also more likely to have more educated parents, but controlling for parents' educational attainment and controlling for whether the individual received an inheritance (and how large of an inheritance) only reduces the magnitude of the coefficient slightly. That is to say, a one SD increase in the polygenic score is associated with around a 10% increase in wealth for reasons other than own or parents education, income or inheritance. Exploring the mechanisms behind the relationship, they find that individuals with a higher education polygenic score tend to be less risk averse and are less likely to hold extreme believes about future macroeconomic conditions (e.g. the likelihood of economic depression or double digit inflation). As a result, individuals with a high education score are more likely to invest in stocks, explaining much of the effect on wealth. Even individuals who were born into a high socioeconomic status family, but have a low polygenic score are more likely to report these extreme beliefs and thus be less likely to invest in stocks. Finally, they show that the gene-wealth gradient is less steep for individuals who hold defined benefit (rather than defined contribution) retirement accounts. Essentially, since defined benefit plans reduce financial decision-making, there is less scope for individuals to be harmed by their low polygenic score (and conversely, less scope for individuals to benefit from a high one). The authors suggest that defined benefit plans are a policy tool with which to decrease wealth inequality related to genetics. I'm curious what people on the sub think about this. Does it surprise you that we can look at a person's genes and predict their investing behavior? Does it in any way change the way you think about the government's role in individual retirement planning? Is it reasonable to assume everyone can effectively and successfully plan their own retirement, and what should be done about individuals who are at a genetic disadvantage when it comes to financial decision-making? Edit: Just want to add... I don't believe in eugenics (since that apparently needs to be affirmed). I don't know the authors of this paper and have no stake in it at all. Just thought it might be interesting to discuss! [link] [comments]  |
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