Household Finance

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Applied Economics and Finance".

Deadline for manuscript submissions: closed (1 November 2021) | Viewed by 58244

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Guest Editor
School of Accounting, Economics and Finance, Curtin University, Bentley, WA 6102, Australia
Interests: household finances; asset allocation; mis-classification in survey responses; applied econometrics
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

This Special Issue focuses on the broad topic of “Household Finance” and includes all areas related to such, including but not limited to novel research on: household portfolio allocation and debt decisions; insurance choices; pensions and superannuation; financial literacy; and home ownership and investment. 

Both theoretical and empirical studies are welcomed, as is the use of novel mathematical/statistical/econometric/machine-learning techniques to these broad topic areas. Policy-relevant research will be especially welcomed, especially in light of the COVID-19 pandemic.

Prof. Dr. Mark Harris
Guest Editor

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Keywords

  • portfolio allocation
  • financial literacy
  • household debt
  • household saving
  • pensions/superannuation
  • personal insurance
  • econometric methods
  • statistical methods

Published Papers (16 papers)

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Research

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17 pages, 1079 KiB  
Article
Nudges and Networks: How to Use Behavioural Economics to Improve the Life Cycle Savings-Consumption Balance
by David Blake
J. Risk Financial Manag. 2022, 15(5), 217; https://doi.org/10.3390/jrfm15050217 - 13 May 2022
Cited by 2 | Viewed by 3477
Abstract
Many people find it difficult to start and maintain a retirement savings plan. We show how nudges can be used both to encourage people to save enough to provide an acceptable standard of living in retirement and to draw down their accumulated pension [...] Read more.
Many people find it difficult to start and maintain a retirement savings plan. We show how nudges can be used both to encourage people to save enough to provide an acceptable standard of living in retirement and to draw down their accumulated pension fund to maximize retirement spending, without the risk of either running out of money or leaving unintended bequests. Networks can help too, particularly employer-based networks. However, the nudges and networks are more likely to be effective if they have legislative backing and support. Full article
(This article belongs to the Special Issue Household Finance)
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11 pages, 252 KiB  
Article
The Impact of Migration on Vietnam Household Living Standards
by Ngoc Hung Pham, Manh Dung Tran, Anh Duc Le and Thuy Linh Le
J. Risk Financial Manag. 2022, 15(5), 201; https://doi.org/10.3390/jrfm15050201 - 26 Apr 2022
Viewed by 2926
Abstract
This study is conducted to investigate the impact of migration on living standards of households with migrants in the context of Vietnam. Data were collected from the results of Vietnam Household Living Standards in the time series. Blinder–Oaxaca decomposition was employed to decompose [...] Read more.
This study is conducted to investigate the impact of migration on living standards of households with migrants in the context of Vietnam. Data were collected from the results of Vietnam Household Living Standards in the time series. Blinder–Oaxaca decomposition was employed to decompose the source of differences in income between households with migrants and households without migrants. The results show that households with migrants in the multiyear dataset had a higher income than nonmigrant households, and migration had different impacts on expenditure at different quantiles. By conducting quantile regression, migration had positive impacts on expenditures at the 10% and 50% quantile, but no impact at the 90% quantile. Based on the findings, some implications in policies for managers, such as appropriate policies for poor workers in order to improve their living standards, especially poor households in rural or mountainous areas, are proposed. Full article
(This article belongs to the Special Issue Household Finance)
11 pages, 1823 KiB  
Article
Balance and Stability of Polish Pension Insurance System
by Marta Maciejasz and Bartosz Chorkowy
J. Risk Financial Manag. 2022, 15(3), 106; https://doi.org/10.3390/jrfm15030106 - 25 Feb 2022
Cited by 1 | Viewed by 2334
Abstract
The structure of the Polish pension insurance system, despite many reforms carried out in recent years, is still mainly based on the pay-as-you-go (repartition) pillar. To make it work properly, a constant inflow of participants who will pay contributions, thanks to which it [...] Read more.
The structure of the Polish pension insurance system, despite many reforms carried out in recent years, is still mainly based on the pay-as-you-go (repartition) pillar. To make it work properly, a constant inflow of participants who will pay contributions, thanks to which it will be possible to pay benefits to current beneficiaries, is necessary. At the same time, a negative demographic trend is observed, which can be a signal that more and more people are going to be paid from the system, while fewer people are going to provide money to it. Therefore, the question arises: How much time is there left for repartition-based pension insurance system to last? Is this system really a vehicle of economic and social development or retrograde rather? This article is an attempt to answer such question using the example of the Polish pension insurance system (PIS). To answer this question, linear trend models were used in the analysis. The adjustment of these models to reality was high, and on their basis, the forecasts for the following years were estimated. The variables used in the analysis are time, number of people, and the value of contributions and withdrawals. According to the research, it can be concluded that Polish pension insurance system has about 60 years to last in such form. Demographic changes are definitely unfavorable, and the age gap is getting bigger and bigger. This means that fewer people are going to provide money for those who are inactive. Full article
(This article belongs to the Special Issue Household Finance)
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22 pages, 2374 KiB  
Article
Integrated Intellectual Investment Portfolio as an Efficient Instrument to Manage Personal Financial Investment
by Aleksandras Vytautas Rutkauskas and Viktorija Stasytytė
J. Risk Financial Manag. 2022, 15(1), 30; https://doi.org/10.3390/jrfm15010030 - 11 Jan 2022
Viewed by 3189
Abstract
The redistribution of resources in global stock markets is prevalent: the capital is transferred from one investor to another. Sometimes, earning a substantial return in the stock market seems complicated to implement for an individual investor. Investing contributes to the welfare of society [...] Read more.
The redistribution of resources in global stock markets is prevalent: the capital is transferred from one investor to another. Sometimes, earning a substantial return in the stock market seems complicated to implement for an individual investor. Investing contributes to the welfare of society and the wealth of citizens. This is why people should look for efficient ways to invest. Investment should become a natural part of personal finance management in the majority of households. For this reason, an investment model is developed where stocks are selected based only on market intelligence using historical data. The model helps find one or several stocks that generate the highest return on a separate step. Applying this model, experiments were performed with daily data from German, US, and UK stock markets. The possibility of obtaining higher than average returns in these markets has been noticed. In the German market, during the 97-day period, the authors obtained a 1.46 return, which implies a 2.31 annual return: in the USA market, a 2.37 return (7.93 annual return), and in the UK market, a 1.90 return (4.09 annual return). Thus, the proposed investment decision-making system could be an efficient tool for forming a sustainable individual or household portfolio. It can generate higher investment returns for an investor and, moreover, make the market more efficient by applying market intelligence and related historical data. Full article
(This article belongs to the Special Issue Household Finance)
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29 pages, 872 KiB  
Article
Subjective Return Expectations, Perceptions, and Portfolio Choice
by Hector Calvo-Pardo, Xisco Oliver and Luc Arrondel
J. Risk Financial Manag. 2022, 15(1), 6; https://doi.org/10.3390/jrfm15010006 - 30 Dec 2021
Viewed by 2073
Abstract
Exploiting a representative sample of the French population by age, wealth, and asset classes, we document novel facts about their expectations and perceptions of stock market returns. Both expectations and perceptions of returns are very dispersed, significantly lower than their data counterparts, and [...] Read more.
Exploiting a representative sample of the French population by age, wealth, and asset classes, we document novel facts about their expectations and perceptions of stock market returns. Both expectations and perceptions of returns are very dispersed, significantly lower than their data counterparts, and a substantial portion of the variation in the former is explained by dispersion in the latter. Consistent with portfolio choice models under incomplete information, a conditional risk-return trade-off explains the intensive margin, while at the extensive margin, only expected returns matter. Despite accounting for survey measurement error in subjective return expectations, ’muted sensitivities’ at both portfolio choice margins obtain, getting consistently (i) bigger when excluding informed non-participants, and (ii) smaller, for inertial and professionally delegated portfolios. Full article
(This article belongs to the Special Issue Household Finance)
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13 pages, 928 KiB  
Article
Mental Time Travel and Retirement Savings
by David Blake and John Pickles
J. Risk Financial Manag. 2021, 14(12), 581; https://doi.org/10.3390/jrfm14120581 - 3 Dec 2021
Cited by 2 | Viewed by 2517
Abstract
We portray the valuation of retirement savings in terms of a mental time travel journey in which a proposed contribution to a pension plan is projected forward to the plan member’s retirement date and this projected value is then discounted back to today, [...] Read more.
We portray the valuation of retirement savings in terms of a mental time travel journey in which a proposed contribution to a pension plan is projected forward to the plan member’s retirement date and this projected value is then discounted back to today, thereby giving a present or personal value. We set this within a broader framework of pension planning, which seeks to smooth consumption over the lifecycle. We explain how two psychological biases—exponential growth bias and present bias—can lead to a difference between the initial value of a pension contribution and its present value, such a difference reflecting an asymmetry between projection and discounting, and how such a difference might lead to inadequate retirement savings and hence to a lower than desired standard of living in retirement. We consider how the two biases might be mitigated. Full article
(This article belongs to the Special Issue Household Finance)
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15 pages, 412 KiB  
Article
Overconfidence, Financial Advice Seeking and Household Portfolio Under-Diversification
by Stijn P. M. Broekema and Marc M. Kramer
J. Risk Financial Manag. 2021, 14(11), 553; https://doi.org/10.3390/jrfm14110553 - 16 Nov 2021
Cited by 1 | Viewed by 2560
Abstract
This paper examines the relationship between overconfidence and losses from under-diversification among Dutch investors. We find that a lack of proper portfolio diversification is positively associated with overconfidence. Part of this relationship is mediated through the lower propensity of overconfident individuals to hire [...] Read more.
This paper examines the relationship between overconfidence and losses from under-diversification among Dutch investors. We find that a lack of proper portfolio diversification is positively associated with overconfidence. Part of this relationship is mediated through the lower propensity of overconfident individuals to hire a professional financial adviser. We use data from the 2005 wave of the DNB Dutch Household Survey that provides us with detailed portfolio data of 257 investors. We proxy for overconfidence by exploiting the difference between measured and self-assessed financial literacy, and use this proxy in a regression model (with and without mediation) to explain the difference between the actual households return and the return that could have been obtained by selecting a portfolio on the efficient frontier with equivalent risk. Our results contribute to the current discussion among policy makers on the role of financial advice and self-perceptions in household financial decision-making. Full article
(This article belongs to the Special Issue Household Finance)
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14 pages, 477 KiB  
Article
Australians’ Financial Wellbeing and Household Debt: A Panel Analysis
by Muhammad S. Tahir and Abdullahi D. Ahmed
J. Risk Financial Manag. 2021, 14(11), 513; https://doi.org/10.3390/jrfm14110513 - 26 Oct 2021
Cited by 5 | Viewed by 2888
Abstract
“An excess of everything is bad”. This famous old proverb fits well with the current condition of Australian household debt that is continuously rising. Research in Australia’s household indebtedness is scarce and strategies to control the rising household debt remain contentious. The government [...] Read more.
“An excess of everything is bad”. This famous old proverb fits well with the current condition of Australian household debt that is continuously rising. Research in Australia’s household indebtedness is scarce and strategies to control the rising household debt remain contentious. The government of Australia has introduced financial literacy and financial capability measures to help control the rising household debt. Given that the literature highlights the importance of improving financial wellbeing, we analyse if financial wellbeing is a factor, which could be relevant to the reduced household debt. We use the Household, Income and Labour Dynamics in Australia panel survey in our analysis and find that improved financial wellbeing is associated with the reduced debt-taking behaviour of Australians. Our robust analysis confirms our findings. Finally, our empirical results suggest that improving households’ perception of their personal financial situation can bring improvement in their financial decisions, including the decision to take on debt. Full article
(This article belongs to the Special Issue Household Finance)
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11 pages, 308 KiB  
Article
Gender Differences in Intra-Household Financial Decision-Making: An Application of Coarsened Exact Matching
by Frederik Booysen and Sevias Guvuriro
J. Risk Financial Manag. 2021, 14(10), 469; https://doi.org/10.3390/jrfm14100469 - 6 Oct 2021
Cited by 3 | Viewed by 2633
Abstract
Most studies that explore collective models of intra-household decision-making use economic outcomes such as human capital, earnings, assets, and relative income shares as proxies of the relative distribution of bargaining power. These studies, however, fail to incorporate important measures of control over and [...] Read more.
Most studies that explore collective models of intra-household decision-making use economic outcomes such as human capital, earnings, assets, and relative income shares as proxies of the relative distribution of bargaining power. These studies, however, fail to incorporate important measures of control over and management of the economic resources within households. In the current study, a direct measure of financial decision-making power within the household is used to directly assess the distribution of bargaining power. Coarsened exact matching, an identification strategy not yet applied in studies of this nature, is applied to couple-level observational data from South Africa’s longitudinal National Income Dynamics Study. The influence of gender differences in intra-household decision-making on resource allocations to per capita household expenditure is assessed. In the case of greater financial decision-making power in couples being assigned to wives rather than husbands, per capita household expenditure on education increases significantly. The empowerment of women with financial decision-making power therefore holds the promise of realizing the benefits of investments in human capital. Full article
(This article belongs to the Special Issue Household Finance)
12 pages, 357 KiB  
Article
Economic Education and Household Financial Outcomes during the Financial Crisis
by Paul W. Grimes, Kevin E. Rogers and William D. Bosshardt
J. Risk Financial Manag. 2021, 14(7), 316; https://doi.org/10.3390/jrfm14070316 - 9 Jul 2021
Cited by 2 | Viewed by 2841
Abstract
Using cross-sectional data from a nation-wide survey of American head-of-households conducted in the spring of 2010, we examined the ameliorating effects of economic literacy on the probability of specific household financial outcomes resulting from the 2008 financial crisis and the associated Great Recession. [...] Read more.
Using cross-sectional data from a nation-wide survey of American head-of-households conducted in the spring of 2010, we examined the ameliorating effects of economic literacy on the probability of specific household financial outcomes resulting from the 2008 financial crisis and the associated Great Recession. A series of probit regressions were estimated to capture the impact of economic literacy on the probability that households experienced job loss, delinquent mortgage payments, delinquent credit card payments, delinquent auto loan payments, loss of home, and personal bankruptcy. The head-of-household’s economic literacy was measured by the level of formal education received in economics and by the score achieved on an in-survey quiz of basic economic concepts and principles. The results indicate that realized quiz scores were correlated with the mitigation of job loss, late payment behavior, and personal bankruptcy, ceteris paribus. However, the results for the impact of formal economic coursework in school were mixed. Full article
(This article belongs to the Special Issue Household Finance)
19 pages, 1302 KiB  
Article
Examining Low-Income Single-Mother Families’ Experiences with Family Benefit Packages during and after the Great Recession in the United States
by Yu-Ling Chang and Chi-Fang Wu
J. Risk Financial Manag. 2021, 14(6), 265; https://doi.org/10.3390/jrfm14060265 - 11 Jun 2021
Cited by 2 | Viewed by 3748
Abstract
The recent economic recession triggered by the global pandemic has renewed scholarly interest in the role of social welfare systems in supporting economically vulnerable families when they experience employment instability. This article unpacks the patterns of the cash and in-kind components of the [...] Read more.
The recent economic recession triggered by the global pandemic has renewed scholarly interest in the role of social welfare systems in supporting economically vulnerable families when they experience employment instability. This article unpacks the patterns of the cash and in-kind components of the monthly family benefit packages that US low-income single mothers accessed during and after the Great Recession. We used the 2008 Survey of Income and Program Participation and an innovative analytic procedure involving family benefit package plots, group-based trajectory modeling, and logistic regression modeling. We found that low-income single mothers more often used in-kind basic-needs packages and less often used packages that bundle a cash benefit or a childcare subsidy, regardless of their dynamic employment status. Our findings challenge the effectiveness of the US work-based welfare system in ensuring the economic security of economically vulnerable families and contribute to the policy discussions on unconditional basic income and President Biden’s American Families Plan. Full article
(This article belongs to the Special Issue Household Finance)
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21 pages, 1451 KiB  
Article
A Double-Hurdle Model of Healthcare Expenditures across Income Quintiles and Family Size: New Insights from a Household Survey
by Ahmad Reshad Osmani and Albert Okunade
J. Risk Financial Manag. 2021, 14(6), 246; https://doi.org/10.3390/jrfm14060246 - 31 May 2021
Cited by 3 | Viewed by 2779
Abstract
The decision-making processes and outcomes of male and female household heads differ due to gender-based differences in preferences. In this paper, we assess the impact of this heterogeneity on household healthcare consumption in Thailand. Past studies modeling healthcare expenditures using household survey data [...] Read more.
The decision-making processes and outcomes of male and female household heads differ due to gender-based differences in preferences. In this paper, we assess the impact of this heterogeneity on household healthcare consumption in Thailand. Past studies modeling healthcare expenditures using household survey data used a gender dummy variable in regression models to control for household gender headship at the household level. Due to the endogeneity and self-selection bias in the past modelling approach, we separately modeled health expenditures for male and female household head decision makers. Using a household dataset from an earlier work, this study finds, using the double-hurdle model with dependent errors, that out-of-pocket health care spending tends to behave like a necessity across the income quintiles, household sizes, and differently for the separately modeled household gender heads. Moreover, male and female headed households responded differently to a major economic shock when adjusting household healthcare spending. Full article
(This article belongs to the Special Issue Household Finance)
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40 pages, 1865 KiB  
Article
Household Wealth: Low-Yielding and Poorly Structured?
by Marc Peter Radke and Manuel Rupprecht
J. Risk Financial Manag. 2021, 14(3), 99; https://doi.org/10.3390/jrfm14030099 - 3 Mar 2021
Viewed by 3796
Abstract
In this paper, we present a newly generated data set on real returns of households’ aggregated asset holdings, which adds additional and more sophisticated information to existing relevant datasets in the literature. To do this, we draw on various datasets from public and [...] Read more.
In this paper, we present a newly generated data set on real returns of households’ aggregated asset holdings, which adds additional and more sophisticated information to existing relevant datasets in the literature. To do this, we draw on various datasets from public and private sources and then transform and combine them in a consistent manner that allows for international comparative and intertemporal analyses. Based on this, we address two current debates on the development of household wealth in the euro area that have been triggered by the low-interest environment. The first debate refers to the development of real yields on household wealth from 2000 to 2018, whereas the second debate deals with the mean-variance efficiency of household portfolios. Contrary to widespread belief, we find that yields on total wealth, which were largely dominated by non-financial assets’ yields, were mostly positive, although they exhibit a declining trend. Moreover, on average, overall real yields were significantly lower after 2008. Referring to portfolio efficiency, we find that current portfolios seem to be comparatively close to mean-variance efficiency. If households were to optimize their portfolios despite limited room for improvement, holdings of equity and investment fund shares should be reduced, contradicting common recommendations of financial advisors. Full article
(This article belongs to the Special Issue Household Finance)
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40 pages, 484 KiB  
Article
The Evolution of Arrears among US Households 1995–2013
by Charles Grant
J. Risk Financial Manag. 2021, 14(2), 43; https://doi.org/10.3390/jrfm14020043 - 20 Jan 2021
Viewed by 1753
Abstract
This paper looks at arrears among US households between 1995 and 2013. It uses household data from the Survey of Consumer Finances (SCF) where arrears occur when a household reports it “sometimes got behind or missed a payment”. The key contribution is that [...] Read more.
This paper looks at arrears among US households between 1995 and 2013. It uses household data from the Survey of Consumer Finances (SCF) where arrears occur when a household reports it “sometimes got behind or missed a payment”. The key contribution is that it decomposes the change in arrears into a behavioural part and a compositional part. Older poorer households increased arrears between 1995 and 2001 (this reversed in 2004). Younger middle-income households increased arrears in 2004. Following bankruptcy reform, wealthier households under 50 reduced their arrears between 2004 and 2007. During the sub-prime recession, everyone except younger low income households increased their arrears. The decomposition exercise shows that most of the changes over time are attributed to changes in arrears once the loan is given and not to the change in the composition of the pool of borrowers. Full article
(This article belongs to the Special Issue Household Finance)
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14 pages, 314 KiB  
Article
How to Measure Financial Literacy?
by Marc Oliver Rieger
J. Risk Financial Manag. 2020, 13(12), 324; https://doi.org/10.3390/jrfm13120324 - 19 Dec 2020
Cited by 20 | Viewed by 12463
Abstract
Financial (il-)literacy and its effects have been studied extensively in recent years. The measurement of this concept is, however, tricky and numerous measurement instruments exist. In this paper, we study the connection between these measures empirically. We find that these measures are often [...] Read more.
Financial (il-)literacy and its effects have been studied extensively in recent years. The measurement of this concept is, however, tricky and numerous measurement instruments exist. In this paper, we study the connection between these measures empirically. We find that these measures are often only slightly related and that this is a so-far overlooked empirical problem in this field. As a result of our analysis, we suggest the combination of two measures as the best potential alternative to the existing measures. Finally, we analyze the predictive power of this suggested measure for stock investment decisions. Full article
(This article belongs to the Special Issue Household Finance)
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Review

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21 pages, 1460 KiB  
Review
Offsetting Risk in a Neoliberal Environment: The Link between Asset-Based Welfare and NIMBYism
by Matthew C. Record
J. Risk Financial Manag. 2021, 14(11), 547; https://doi.org/10.3390/jrfm14110547 - 12 Nov 2021
Cited by 1 | Viewed by 2118
Abstract
Affordable housing policy in the developed world has been undergoing a systematic commodification for several decades, including a push for homeownership as the normalized tenure and a commodity unto itself. Scholars suggest this push for homeownership is part and parcel of a neoliberal [...] Read more.
Affordable housing policy in the developed world has been undergoing a systematic commodification for several decades, including a push for homeownership as the normalized tenure and a commodity unto itself. Scholars suggest this push for homeownership is part and parcel of a neoliberal asset-based welfare to supplement, or even outright replace, traditionally defined benefit pension schemes. These policies individualize risk and re-fashion individual citizens as long-term financial planners, navigating the uncertainty inherent in international financial markets and general financial management. Less deeply explored, however, are the perverse incentives this system creates for homeowners to protect their home “investment” by leveraging planning policies, zoning, and land-use restrictions to preserve the community status quo and lock in the value of their home. In a policy environment in which long-term financial risk is individualized and public social welfare and pension systems are relegated to the smallest number of individuals possible, this type of NIMBYism (Not in My Backyard) is rather rational behavior, even as it simultaneously staunches the supply of new housing and drives up prices for non-homeowners. As such, this analysis synthesizes the existing research to make a formal theoretical connection between the neoliberal push for commodified housing, asset-based welfare, and the intractable political problem of NIMBYism. Full article
(This article belongs to the Special Issue Household Finance)
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