Yes / We consider the readability of payday loan websites against conventional lenders. Our findings show that credit card websites are harder to read and contain more complex terminology. Our central contribution is to provide the first known measurement of readability in consumer finance — something regulators have found helpful in other domains.

Doctor of Philosophy / School of Family Studies and Human Services / Maurice M. MacDonald / Since 2008, the effects of the Great Recession have lingered in memory and in public discourse, and have underscored the need to better understand the determinants of financial resilience. Financial resilience refers to the household’s ability to absorb and respond to financial shocks (MacKinnon & Derickson, 2013). A financial shock may be induced by a rapid decline in income or asset values, an increase in expenses, or some combination thereof. Solvency -- the relationship between a household’s assets and liabilities -- is one aspect of financial resilience: maintaining a healthy debt ratio affords a household the opportunity to liquidate assets to meet debt obligations in response to a financial shock. Thus, the practical question which inspired this dissertation was "what is the right amount of debt for the household?" Within the personal finance and consumer economics literature, borrowing and saving -- behaviors which influence household solvency -- are conceptualized in part as functions of individual future orientation. The premise that resources are fungible, however, has led to the characterization of concurrent borrowing and saving as a behavioral anomaly. Corporate finance, by contrast, does not characterize this common practice as an anomaly, but suggests that concurrent borrowing and saving is, in part, a matter of balancing the costs and benefits of debt. However, theories of corporate finance cannot predict or explain how individual future orientation might influence a household’s capital structure. Thus, this dissertation adds to the literature by exploring precisely this question: how does individual future orientation influence household capital structure? The present results suggest, in contrast to the existing body of research, that future orientation is positively associated with an individual’s propensity to use leverage to finance investments; but that within a complex family resource management system, this individual propensity is moderated by the relative bargaining power of the other members of the household.

<p>This dissertation consists of two essays investigating participation effects in household financial decisions. In the first essay, entitled "Household Mortgage Choice and Mortgage Market Participation," I empirically study a household's choice of an adjustable rate mortgage (ARM) over a fixed rate mortgage (FRM) across time. This decision has been investigated in the cross-section previously, but to date, no one has studied how a household's choice of mortgage contract type changes as they gain experience in the mortgage market. This study investigates whether mortgage market participation has a systematic effect on the choice of an ARM vs. an FRM within a household. Using the Panel Study of Income Dynamics (PSID) and the Survey of Consumer Finances (SCF), I document a novel stylized fact: a household's propensity to choose an adjustable rate ARM over an FRM increases with the number of previous mortgages the household has used. Households do not choose an ARM due to budget or liquidity constraints when increasing housing consumption; nor is the observed pattern of increased propensity to choose an ARM with mortgage market participation explained by the simultaneous relaxation of budget constraints as homeowners participate in the mortgage market. Stabilization of a household's income stream and rising home prices are also ruled out as the source of increasing ARM choice propensity with greater utilization of mortgages, as is expected length of tenure. Evidence is presented supporting the hypothesis that households learn about mortgage products by participating in the market.</p><p>In the second essay, entitled "Participation Effects in Refinancing Decisions", I investigate household refinancing decisions in the context of market participation. Using optimal refinance interest rate differentials as derived in Agarwal, Driscoll and Laibson (2013), I document an important participation effect in the Panel Study of Income Dynamics, whereby households with greater mortgage market participation, as measured by previous mortgages used, are more likely to refinance optimally. This result is robust to potential liquidity constraints, where the household fails to refinance due to an inability to pay any fixed costs associated with the transaction. Participation effects persist even when controlling for the potential of equity extraction as the primary motivation for refinancing. These results are consistent with an information acquisition model, whereby households gain knowledge and understanding of financial transactions by participating in financial markets.</p> / Dissertation

This dissertation is composed of three papers that shed light on the stock-market participation puzzle. The first article studies different aspects of the participation of Spanish households in the stock market. I start by analyzing the determinants of stockholding in a reduced form setting, quantifying the importance of different socioeconomic variables on the decision to hold stock. This is complemented by a comparison with US stocking-holding behavior, especially that of highly sophisticated households who might be expected to participate fully in the market. The second article develops and estimates a full consumption and portfolio-choice life-cycle model to help explain the behavior uncovered in the first article. This model includes a fixed cost for participation in the stock and produces empirically sensible simulations of households' stock-holding patterns by age. It shows the powerful effect that the fixed cost has in explaining the non-participation issue. Moreover, using data from Spanish households I estimate this fixed cost. The third article, co-authored with Michael Ehrmann, breaks away from classic models and delves into the importance of considering more behavioural or psychological issues to explain this puzzle. In particular, we look at the effect of past macroeconomic experiences on the households' portfolio choice and risk-taking behaviour. We find that the average stock market return experienced by a household through its life time has a significant effect on its decision to hold stock. Moreover, disastrous events such as stock market crashes remain in people's minds and deter them from investing for a long period after the event happened.

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This dissertation consists of three chapters. The first chapter uses credit card data to estimate the impact of increasing minimum payments on delinquency, payments, spending, and write-offs. The identification strategy exploits an unusual institutional feature: borrowers can use their account to make purchases with both revolving loans (on which minimum payments increased) and term loans (on which there was no change). Payment increases by delinquent borrowers are insufficient to match increasing minimums, resulting in lower cure rates and an increase in write-offs. Affected borrowers migrate away from these accounts by decreasing charges and increasing payments, consequently lowering the interest earned by the bank. The second chapter analyzes the response of consumption, debt, and delinquency to an anticipated increase in cash-on-hand in the presence of liquidity constraints. It uses account-level data from a North American bank that allows clients to make purchases using credit card and term loans on the same account. Term loans are paid off in a predetermined number of equal monthly installments. The end of a term loan therefore generates a predictable increase in cash-on-hand relative to months in which payments were required. Consistent with a model in which consumers are potentially liquidity constrained, consumers \textit{ex-ante} identified as unconstrained do not increase their credit card expenditures, constrained consumers increase both their credit card expenditures and balance, and consumers for whom the credit card is the marginal source of funds decrease their balance. The propensity to take out a new term loan increases for all consumers, whether constrained or not. About 4% of unconstrained consumers delay taking out a new term loan until the original loan is repaid, contrary to theoretical predictions. Paying off the term loan reduces financial delinquency and the probability of default. The third chapter analyzes the comovement of personal savings and income using administrative data provided by a North American bank that records the sum of monthly direct deposit income into its clients' checking accounts. It investigates how permanent and transitory income changes are smoothed by checking account balances. Transitory income changes, whether positive or negative, have only transitory effects on checking account balances, suggesting that consumption is excessively sensitive to them compared to theoretical predictions. Permanent income changes lead to permanent adjustments in consumption and modest permanent adjustments in checking account balances, consistent with theoretical predictions. There is evidence of anticipation of future income changes as much as three months in advance.

<p>This dissertation consists of two essays on household portfolio choice. The first essay is entitled 'Household Portfolio Choice and Retirement'. In this first essay, I empirically examine the portfolio decisions of households as they transition into retirement. I document a novel stylized fact: holding household characteristics constant, singles maintain a relatively constant share of risky assets in their financial portfolios as they transition into retirement. On the other hand, couples decrease their share of risky assets significantly. I analyze this difference in behavior, and show that it is not driven by retirement-related background risks for couples relative to singles. Instead, I show that the heterogeneity within couples can be explained by the within-couple difference in spouses' individual risk aversion levels, and that the results are consistent with a net increase in couples' effective household-level risk aversion after retirement. Further, exploiting heterogeneity in couples' relative retirement dates, I show that husbands' and wives' respective retirement events are associated with very different (opposite-signed) persistent effects on the risky share of couples' portfolios. Moreover, I show that the relative magnitude of these persistent effects is consistent with the importance of each spouse's labor income within the household before retirement. Overall, the evidence is consistent with the outcome of a household bargaining game in which wives demand a smaller share of risky assets than their husbands, with each spouse losing some bargaining power after retiring.</p><p>In the second essay, entitled 'Household Bargaining and Asset Allocation', we empirically examine the effect of intra-household bargaining on household portfolio choice over the life cycle. We find that fluctuations in the distribution of intra-household bargaining power are associated with significant asset allocation shifts between risky and comparatively safer asset classes in households' portfolios. Our results are robust to alternative risky asset definitions, including investments in stocks, real estate, and holdings in private business, as well as to alternative control specifications. We find that the implied effect of intra-household bargaining is economically large in magnitude, with changes in bargaining power driving within-household variation in risky asset shares comparable to changes in labor income and wealth over the life cycle.</p> / Dissertation

Studying household finance and behavior is important not only for understanding the micro level behavior, but also to have a better understanding of the whole economy. The study of household behavior become even more important after the 2007 housing crises, and the giant effect it had (and is still having) on Wall Street and the whole US and global economy. This dissertation is an attempt to understand some of the household behavior: how does the new internet era affect the demand for credit cards, which attitudes influence the household's decision to file bankruptcy, and whether expenditure habits encouraged overspending. The study will use the micro level data provides by Survey of Consumer Finance SCF2007. In the first chapter, the study focuses on the effect of having internet access on household demand for credit cards, controlling for standard price, income effects and other financial and demographic variables. The internet changed the way consumer shops, with more information about the product, the market and the price. E-Commerce retail sales grew on average of 22% a year over the past decade; in the second quarter of 2009 it reached $32.4 billion. The study found that households who have access to the internet, carry around $862 more on their credit card balance, in average, than households who have no access to the internet. The second chapter investigates the effects of borrowing and saving attitudes on household decision to file for personal bankruptcy. The total non-commercial bankruptcy filings increased from 560,682 cases in 2006 to 784,079 in 2007. This increase continued through 2008 and the first quarter of 2009, with 1,031,443 cases filed in 2008 and 304,228 in the first three months of 2009. The study results suggest that borrowing and saving attitudes have no effect of household decision to file for bankruptcy except for paying credit card balance in full every month. The third chapter studies the relationship between eating out "Food-Away-From-Home" and overspending. Since 19% of household in the US are spending more than their income. The average for the past nine years (2000-2008) was 1.6%. Compared to other industrialized countries, the US had one of the worst personal saving rates during the past twenty years . The study found that eating out does not encourage overspending. On the contrary, the higher the ratio of FAFH to total food expenditures the less likely household will overspend.

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Finanzielle Resilienz und der Umgang mit finanziellen Risiken sind wesentliche Bestandteile einer erfolgreichen finanziellen Inklusion. Die persönlichen Faktoren, die finanzielles Management formen, sind allerdings nicht umfassend bekannt. Diese Dissertation untersucht wie nicht-standard-ökonomische Präferenzen und Vorstellungen („Beliefs“) dazu beitragen können verschiedene Vorgehensweisen im finanziellen Risikomanagement von Haushalten zu verstehen. Der Fokus liegt dabei auf Ländern, die kurz davor stehen einkommensstarke Ökonomien zu werden und in denen die Auswahl an finanziellen Produkten und die finanzielle Inklusion stetig wachsen. Vier Bereiche des finanziellen Risikomanagements werden betrachtet. Kapitel zwei analysiert den Zusammenhang zwischen Ungleichheitsaversion und der Aufnahme von Versicherungen. Dazu wird ein neuartiges Maß für Ungleichheitsaversion konstruiert und in einer Haushalts-Panelumfrage in Thailand verwendet. In Kapitel drei wird der Effekt von sozialen Vergleichen auf die Schuldenaufnahme in einem Laborexperiment in Deutschland untersucht um zwei Arten von Peer Effekten zu entflechten: Sorge um das soziale Ansehen und Peer Information. Kapitel vier erforscht potenzielle Unterschiede in Unsicherheitspräferenzen und in Beliefs zwischen Individuen, die vermeintlich ein hohes Risiko managen: Selbständige aus der Notwendigkeit und Selbstständige aus der Möglichkeit heraus als auch Menschen mit Migrationsgeschichte in Albanien und im Kosovo. In Kapitel fünf werden Beliefs und deren potenzieller Effekt auf Überschuldung innerhalb der gleichen Panel-Stichprobe in Thailand wie in Kapitel zwei studiert. Alle Kapitel folgen einem gemeinsamen methodologischen Ansatz indem Labor- oder sogenannte lab-in-the-field-Experimente verwendet werden. In drei Kapiteln wird die Evidenz aus dem Labor in Relation zu Resultaten aus dem wahren Leben gesetzt, die mit selbstberichteten Umfragedaten erfasst werden. / Financial resilience and managing financial risks are key factors of a successful financial inclusion. The personal factors that shape financial management are, yet, not well understood. This dissertation studies how non-standard economic preferences and beliefs might help explain different financial management practices of households. The focus is on countries that are on the verge of becoming high income economies and where financial products and inclusion are steadily expanding. Four domains of financial risk management are considered. Chapter two analyzes the relationship between inequality aversion and insurance take-up. To this end, a novel measure for inequality aversion is constructed and employed in a household panel survey in Thailand. In chapter three, the effect of social comparison on debt taking is investigated in a lab experiment in Germany to disentangle two kinds of peer effects: social image concerns and peer information. Chapter four explores potential differences in uncertainty preferences and in beliefs between supposedly high-risk managers: necessity and opportunity entrepreneurs as well as return migrants in Albania and Kosovo. In chapter five, beliefs and their potential effect on over-indebtedness are studied using the same panel sample in Thailand as in chapter two. All chapters follow a common methodological approach by using lab(-in-the-field) experiments. In three chapters, lab evidence is set in relation to real life outcomes elicited with self-reported survey data.