In the long run, we are all dead. Nonetheless, when studying the short-run dynamics of economic models, it is crucial to consider boundary conditions that govern long-run, forwardlooking behavior, such as transversality conditions. We demonstrate …
We study the accumulation of financial competencies in a model of dynamic skill formation. We find evidence of complementarities between financial literacy and risk attitudes. Risk tolerance facilitates experimentation and learning-by-doing. Latent risk attitudes and financial literacy are unevenly distributed across households and do not align with general human capital. Linking estimates with data on household portfolios, we show that early-life differences in financial literacy may account for more than half of the standard deviation of wealth by age 60. Dynamic complementarities in skill for- mation imply that early interventions could reduce later-life inequality while boosting wealth growth.