Child Penalties in Personal Finances: Evidence from Bank Data

Arna Olafsson and David Westerheide

No 21097, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We study how parenthood affects gender differences in personal financial behavior using comprehensive, high-frequency bank data covering roughly one third of the adult population in Iceland. Exploiting sharp changes around the birth of the first child in an event-study framework, we show that parenthood generates large and persistent financial child penalties for women. At childbirth, women sharply reduce savings, draw down private pension balances, increase reliance on consumer credit, and disengage from risky asset markets, while men show no comparable response. These effects persist for over two decades after the first birth. To assess whether these patterns are mechanically driven by income losses associated with parental leave, we decompose financial responses into components implied by income changes and behavioral adjustments conditional on income. Income-based mechanical effects explain essentially none of the observed responses; the financial child penalties are driven overwhelmingly by behavioral changes. We interpret these findings through a framework in which parenthood induces endogenous specialization in financial engagement under asymmetric time constraints and limited commitment within households. When separation risk is non-negligible and financial engagement is individual-specific, changes in personal financial behavior reallocate financial risk and control across partners in non-neutral ways. Our results identify parenthood as a central and previously underexplored driver of gender inequality in personal finances, even in a highly gender-egalitarian setting.

Keywords: Household finance; Household stock market participation; Household portfolio choice; Intra-household inequality; Child penalties (search for similar items in EconPapers)
JEL-codes: D13 D14 D15 G51 (search for similar items in EconPapers)
Date: 2026-01
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21097 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:21097

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21097

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().