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The Effect of Parental Wealth on Children’s Educational Decisions in Germany: Compensation or Demotivation?

Our paper addresses the process of intergenerational mobility in terms oftransfers of educational advantages and disadvantages trough parentalwealth in Germany, where in contrast to the USA, education at any level islargely free of tuitions costs. Based on the unique features of wealth andfollowing the logic of subjective expected utility theory, we propose and, asone of the very first studies, empirically test two causal mechanismsunderlying the parental wealth-educational decisions relationship:“disadvantage compensation” and “educational demotivation”. We apply amultinomial logit model for discrete-time event history analysis, allowingus to estimate the relative transition risk ratio of children with universityentrance qualification to make the transition from upper secondary schoolto 1) higher education, 2) the labor market or vocational training or 3) tonot transition at all. The relative transition risk ratio is measured as afunction of the relative position of the parents in the distribution of netwealth. Our analyses, based on data from the German Socio-EconomicPanel Study (SOEP), reveal that children with wealthy parents are morelikely to decide for higher education, even if they are faced with lowcognitive abilities (i.e., disadvantage compensation).