Performance and implications of Children's Investment Accounts on Portfolios in Adulthood

The idea of the project is to examine the role of parenthood as a factor that may affect investment performance. While numerous households engage in investing for personal gain, a noteworthy aspect that has received scant attention in the literature is the distinct allocation of funds by parents for their children. The objective of this project is twofold. First, we test the notion that can be formed as the following question: Do parents exhibit different patterns in risk-taking and investment decisions when saving for their under-aged children compared to their own investments? Since the prior research has largely overlooked the performance of accounts opened by parents for their children, this research question is novel to the literature. The plan is to address this issue by observing the performance of investment accounts registered for individuals who are younger than 18 years old. The expectation is that these investment accounts, which are managed by parents for their children, outperform other investment accounts since parents are not likely to engage in sensation-seeking trading which is detrimental to performance (see e.g. Brown et al., 2018). Second, the unique dataset that is used in this project allows us to track the performance of investment accounts that were opened by parents for their children when kids turn 18 and start managing these accounts themselves. Therefore, we aim to test whether parents’ decision to open an investment account for their kids has any implications for the investment behavior of children when they grow up. We expect that parents may transmit investment habits and financial knowledge to their kids by establishing their investment portfolios when they are children, which consequently may positively affect portfolio performance in early adulthood.