Child Penalties in Personal Finances: Evidence from Bank Data

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.