Wednesday, May 31Welcome

Business Tax School | Exploring Household Finances

With high inflation at the forefront for consumers and businesses, and the Fed trying to keep inflation in check through rate hikes, the discipline of household finance is once again proving its importance.


Brian Meltzer, who joined Tuck’s School of Finance in 2018, teaches the elective Real Estate.

Tuck Associate Professor Brian Melzer studies household finance, particularly household borrowing, home investment, financial advice, and consumer finance regulation. While this area is now a mainstream topic in finance, it wasn’t always. Meltzer was one of the early economists to focus on it.

Meltzer was first drawn to home finance in the early 2000s when he worked as a research analyst for a financial services firm. One day, he heard a presentation by his lender and pawnbroker company, Payday, which his company was analyzing. The company specialized in high-interest consumer loans for people who did not have access to traditional bank credit. I was fascinated by why they went into debt and why they didn’t have other cheaper options. Meltzer says. It made me want to go back and learn these things. A few years later, Meltzer began a doctoral program at the University of Chicago that focused on the early field of household finance. He taught at the Kellogg School of Management from his 2008 to 2017 and joined Tuck University’s School of Finance in 2018 to teach real estate electives.

Below is an edited and condensed conversation with Meltzer on the basics of household management, based on his recent keynote speech at the 28th Annual General Meeting of the German Finance Association.

What is household management?

I think of it as a study of household economic behavior. It includes several important aspects. The results of households’ financial decisions, the quality of those decisions (whether they are making the right choices that allow them to grow wealth over time and avoid high-cost borrowing), and the factors that shape them to research. Decision. It also includes how financial intermediaries such as banks and advisors interact with households and provide financial services that people use to achieve their goals, and the regulations and policies governing those interactions. .

When did you start researching household finances?

In the mid-1990s, there were a few professors working on this, but in the early 2000s, about 30 academic papers on household finances were being published annually. Over the past few years, top 30 business schools have recruited more than 25 of his recent PhDs, listed financial management as a research subject, and published over 200 financial management-related journal articles each year. It has been.

What is the impetus for growth in this field?

On the wealth side, the big drivers are moving to defined contribution retirement savings (eg 401ks) and exiting defined benefit pension programs. This allows families to make investment choices once made by professional pension fund managers. It’s been going on for a long time, but more and more assets are being led by households that were previously led by outside experts. That is why financial intermediaries are so important.

As for borrowing, the financial crisis was a huge catalyst for the growth of research in this area. Previously, macroeconomists didn’t think much about the financial sector. That is, the role banks play and the role that access to credit plays in household consumption decisions. Suddenly, however, it became clear that the financial difficulties associated with credit withdrawal, excessive leverage, and past borrowing were having far-reaching macroeconomic implications.

What are the future research opportunities in household finance?

Some tailwinds abated. The financial crisis is well overdue and data growth is slowing. However, the need for research in this area will continue, as there are several new catalysts. The development of financial technology is the driving force behind the major changes in how households interact with financial markets. Robo-advice and automated investment strategies that remove humans from a process or change how they fit into that process are interesting changes and important changes to study.

Furthermore, I think the growth of machine learning technology as a way to collect, model and make predictions on data will be very important for credit underwriting and credit provision. There was an interesting tension between allowing innovation and keeping it from violating fair credit laws.

What are you working on these days?

My recent research has moved in two directions: banking regulation and the gig economy. I have a new working paper on price limits on bank overdrafts and their impact on the unbanked, encouraging banks to offer accounts to low-income households who are free to charge higher overdraft fees. It turns out that you don’t mind. Another working paper studies the rise of the gig economy and its negative impact on gig workers’ access to credit.

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