Occupation aspirations, education investment, and cognitive outcomes: Evidence from Indian adolescents

•Aspiration gaps at age 12 are correlated with young adult outcomes.•Moderately high aspirations are related with the highest levels of human capital.•Low and overly high aspirations are correlated with lower human capital.•These results are consistent with the inverted-U theory of aspirations failure.•The adolescent’s time use and attitudes toward the future are potential mechanisms. The occupation aspirations of adolescents play an important role in their human capital investment decisions. This paper provides new empirical evidence of a non-linear relationship between the size of an adolescent’s aspirations gap and human capital as a young adult. The adolescent aspirations gap is quantified as the difference between the wages associated with their occupation aspiration and the wages associated with their parent’s occupation. Higher aspirations at age 12 are correlated with higher human capital levels at age 19, up to a point. Above this inflection point the relationship plateaus and human capital levels no longer increase. Children with the largest aspiration gaps have lower human capital levels than those with more moderate gaps. This empirical result provides evidence for the theoretical prediction that aspirations that are ahead, but not too far ahead, provide the best incentives for investment. Examining potential mechanisms, I provide suggestive evidence that age 12 aspirations influence age 19 human capital levels through the child’s time investment in education, long-term orientation, and agency but not the level of household education expenditure.