Financial Risk Taking and Differential Bargaining Power Within the Household

Using survey data from a representative sample of Dutch households from 2002 to 2018, we examine whether inequality of amounts held in bank accounts 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 share of bank account balances is associated with a drop in the probability to invest in risky financial assets by 1 percentage point. The results suggest that higher economic inequality between the two partners leads to a desire to de-risk the household’s financial portfolio. This in turn implies that in times of financial distress adverse economic outcomes that intensify within-household economic inequalities (such as job loss of one partner) could lead households to withdraw money from financial markets.