Household Finance CAMPBELL, JOHN Y.
The Journal of finance (New York),
August 2006, Volume:
61, Issue:
4
Journal Article
Peer reviewed
Open access
The study of household finance is challenging because household behavior is difficult to measure, and households face constraints not captured by textbook models. Evidence on participation, ...diversification, and mortgage refinancing suggests that many households invest effectively, but a minority make significant mistakes. This minority appears to be poorer and less well educated than the majority of more successful investors. There is some evidence that households understand their own limitations and avoid financial strategies for which they feel unqualified. Some financial products involve a cross-subsidy from naive to sophisticated households, and this can inhibit welfare-improving financial innovation.
•The first rigorous evaluation of financial coaching through a randomized control trial at two sites: New York City, NY and Miami, FL.•Outcomes are estimated using individual-level credit bureau ...records and baseline and follow-up surveys.•Results indicate that financial coaching produces a number of significant effects on behaviors and outcomes related to money management, debt, savings, and perceptions of financial well-being. Most notably, at one site, financial coaching helped participants to increase their savings and credit scores, and at the other, it helped them to reduce their aggregate and delinquent debt.
We undertake the first rigorous evaluation of financial coaching using a randomized controlled trial at two sites. We estimate both treatment uptake and treatment outcomes, including intent to treat estimates and complier average causal effects. Data are drawn from individual-level credit reporting firm records and baseline and follow-up surveys. Results indicate that financial coaching produces a number of significant effects on behaviors and outcomes related to money management, debt, savings, and perceptions of financial well-being. Most notably, at one site, financial coaching helped participants to increase their savings and credit scores, and at the other, it helped them to reduce their aggregate and delinquent debt.
Measuring Financial Literacy HUSTON, SANDRA J.
The Journal of consumer affairs,
06/2010, Volume:
44, Issue:
2
Journal Article
Peer reviewed
Open access
Financial literacy (or financial knowledge) is typically an input to model the need for financial education and explain variation in financial outcomes. Defining and appropriately measuring financial ...literacy is essential to understand educational impact as well as barriers to effective financial choice. This article summarizes the broad range of financial literacy measures used in research over the last decade. An overview of the meaning and measurement of financial literacy is presented to highlight current limitations and assist researchers in establishing standardized, commonly accepted financial literacy instruments.
► This paper presents a field study linking individual decisions to acquire financial information to time preference measures. ► Elicitation of time preferences using incentivized choice experiments ...for all individuals to whom a financial education program was offered. ► Results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not.
Many policymakers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the benefits of being financially informed?
This paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic: time preferences. We elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered. Our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not. The results can be interpreted as non-participants discount the benefits of being financially literate more.
We study the effect of wealth on labor supply using the randomized assignment of monetary prizes in a large sample of Swedish lottery players. Winning a lottery prize modestly reduces earnings, with ...the reduction being immediate, persistent, and quite similar by age, education, and sex. A calibrated dynamic model implies lifetime marginal propensities to earn out of unearned income from −0.17 at age 20 to −0.04 at age 60, and labor supply elasticities in the lower range of previously reported estimates. The earnings response is stronger for winners than their spouses, which is inconsistent with unitary household labor supply models.
Financial literacy among the young LUSARDI, ANNAMARIA; MITCHELL, OLIVIA S.; CURTO, VILSA
The Journal of consumer affairs,
06/2010, Volume:
44, Issue:
2
Journal Article
Peer reviewed
We examined financial literacy among the young using the most recent wave of the 1997 National Longitudinal Survey of Youth. We showed that financial literacy is low; fewer than one-third of young ...adults possess basic knowledge of interest rates, inflation and risk diversification. Financial literacy was strongly related to sociodemographic characteristics and family financial sophistication. Specifically, a college-educated male whose parents had stocks and retirement savings was about 45 percentage points more likely to know about risk diversification than a female with less than a high school education whose parents were not wealthy.
•We explore the relationship between household finances and personality traits.•Extraversion is correlated with the amount of unsecured debt held.•Personality traits have different correlations with ...the various types of debt and assets.
Using data drawn from the British Household Panel Survey, we analyse the relationship between personality traits and financial decision-making focusing on unsecured debt and financial assets. Personality traits are classified according to the ‘Big Five’ taxonomy: openness to experience, conscientiousness, extraversion, agreeableness and neuroticism. We explore personality traits at the individual level and also within couples, specifically the personality traits of the head of household and personality traits averaged across the couple. We find that certain personality traits such as extraversion are generally significantly associated with household finances in terms of the levels of debt and assets held and the correlation is often relatively large. The results also suggest that the magnitude and statistical significance of the association between personality traits and household finances differs across the various types of debt and assets held in the household portfolio.
Consumers assess their well-being subjectively, largely by comparing the present state of their lives to the state of comparable others and to their own state earlier in time. The authors suggest ...that consumers similarly assess their financial well-being, and when these evaluations highlight a deficit in their financial position, they pursue strategies that mitigate the associated sense of financial deprivation. Specifically, consumers counteract the relative deficit in their financial resources by acquiring goods that are consequently unavailable to other consumers in their environment. The results from five studies suggest that the inferiority and unpleasant affect associated with financial deprivation motivates consumers to attend to, choose, and consume scarce goods rather than comparable abundant goods. These effects diminish when scarce goods are limited because other people have already obtained them and when consumers attribute their unpleasant feelings to a source unrelated to financial deprivation.
We study the rapidly growing literature on the causal effects of financial education programs in a meta-analysis of 76 randomized experiments with a total sample size of over 160,000 individuals. ...Many of these experiments are published in top economics and finance journals. The evidence shows that financial education programs have, on average, positive causal treatment effects on financial knowledge and downstream financial behaviors. Treatment effects are economically meaningful in size, similar to those realized by educational interventions in other domains, and robust to accounting for publication bias in the literature. We also discuss the cost-effectiveness of financial education interventions.
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