MyMoney Resources - Researcher

Abstract: Recent fiscal policies have aimed to stimulate household spending. In 2008, most households received one-time economic stimulus payments. In 2009, most working households received the Making Work Pay tax credit in the form of reduced withholding; other households, mainly retirees, received one-time payments. This paper quantifies the spending response to these different policies and examines whether the spending response differed according to whether the stimulus was delivered as a one-time payment or as a flow of payments in the form of reduced withholding. Based on responses from a representative sample of households in the Thomson Reuters/University of Michigan Surveys of Consumers, the paper finds that the reduction in withholding led to a substantially lower rate of spending than the one-time payments. Specifically, 25 percent of households reported that the one-time economic stimulus payment in 2008 led them to mostly increase their spending while only 13 percent reported that the extra pay from the lower withholding in 2009 led them to mostly increase their spending. The paper uses several approaches to isolate the effect of the delivery mechanism from the changing aggregate and individual conditions. Responses to a hypothetical stimulus in 2009, examination of "free responses" concerning differing responses to the policies, and regression analysis controlling for individual economic conditions and demographics all support the primary importance of the income delivery mechanism in determining the spending response to the policies.

The Community Development Department of the Federal Reserve Bank of San Francisco (FRBSF) commissioned this study to explore the feasibility of passing a financial education mandate in California. Specifically, we sought to understand the key barriers related to passing a mandate in California and to identify strategies to implement financial education in the current environment, despite the absence of a state mandate. The study explores multiple options for expanding personal finance training among youth in California, including statewide legislation or education code changes for financial education, professional development and training for teachers on personal finance concepts, and school district adoption of financial preparedness curriculum.

Financial literacy — the ability to use knowledge and skills to manage financial resources effectively for a lifetime of financial well-being — is becoming more and more important as individuals and families become increasingly responsible for their own long-term financial well-being. Financial and economic literacy education programs have been shown to increase financial literacy and capability. Many federal agencies and departments have long-standing financial education programs, and, in recent years, steps have been taken to increase coordination of such efforts. In late 2009, a survey was conducted of 21 federal agencies, who reported offering a total of 56 financial and economic literacy education programs. In this report, the authors analyze the survey data, describing each program's purpose, content, delivery formats, target audience, and evaluation goals and method. The authors conclude with recommendations for future evaluations, emphasizing the need for a standardized definition of what constitutes a financial and economic literacy education program and for a standardized method of evaluating such programs across agencies.

The exact cause of the massive defaults and foreclosures in the U.S. subprime mortgage market is still unclear. This paper investigates whether a particular aspect of borrowers' financial literacy—their numerical ability—may have played a role. We measure several aspects of financial literacy and cognitive ability in a survey of subprime mortgage borrowers who took out mortgages in 2006 or 2007 and match these measures to objective data on mortgage characteristics and repayment performance. We find a large and statistically significant negative correlation between numerical ability and various measures of delinquency and default. Foreclosure starts are approximately two-thirds lower in the group with the highest measured level of numerical ability compared with the group with the lowest measured level. The result is robust to controlling for a broad set of sociodemographic variables and not driven by other aspects of cognitive ability or the characteristics of the mortgage contracts. Our results raise the possibility that limitations in certain aspects of financial literacy played an important role in the subprime mortgage crisis.

Abstract: This paper demonstrates the important role of job displacement in the household bankruptcy decision. I develop a dynamic, forward-looking model of unemployment and bankruptcy where persistent negative income shocks increase a household's likelihood of filing for bankruptcy both immediately and in the future. Consistent with the model's predictions, I find that households in the NLSY are 2.5 times more likely to file for bankruptcy in the year immediately following a job loss, at a rate of an additional 10 bankruptcies per 1000 job losses. Heightened bankruptcy risk then declines in magnitude but persists for two to three years. Aggregate patterns in job loss and bankruptcy are also consistent with the micro model. Using county-level data, I similarly find that 1000 job losses are associated with 8 to 11 bankruptcies and that the effects also last two to three years. In addition, the loss of a manufacturing job, a proxy for a more persistent separation, is three times more likely to lead to bankruptcy than the loss of a non-manufacturing job. The results suggest that even relatively brief unemployment spells can have significant long-term consequences on households' credit market outcomes.

Abstract: This paper reviews the behavioral literature on inter-temporal choice and decision making under uncertainty and assesses the evidence on behavioral influences affecting consumers' credit decisions. The evidence reviewed suggests that consumers often do not consider all information available in the market nor deliberately evaluate each alternative. Consumers simplify, take shortcuts, and use heuristics, which may not always be optimal but nevertheless may be an economical means for achieving desired goals. While most economists and psychologists agree that cognitive errors and time inconsistent behavior occur, the extent to which these phenomena impair actual decisions in markets is not at all clear. At this time, neither existing behavioral evidence nor conventional economic evidence supports a general conclusion that consumers' credit decisions are not rational or that markets do not work reasonably well. Empirical evidence suggests that behavioral research can help improve required information disclosures and contribute to more effective regulation, which enhances the performance of markets and improves individual outcomes.

Millions of American households, especially those in the bottom half of the income distribution, use nonbank credit products, such as payday loans, car title loans, and refund anticipation loans, to meet short-term needs. This credit, while small in initial denomination, can add up to significant debt burdens for those who can least afford it. This document briefly summarizes the convening of a meeting held by the U.S. Department of the Treasury with 50 foundation representatives and researchers from academia, government, the nonprofit sector, and industry, held on Thursday, March 4, 2010. The goal of the convening was to identify what research is underway, planned, and needed to inform policymaking that can address the challenges related to meeting the small-dollar credit needs of underserved populations, notably low- and moderate-income individuals. The one-day event included discussions on both the demand for and supply of small-dollar credit. The demand-side discussion began with an overview of current findings. Participants were then asked to contribute insights, examples of current research underway, and future research questions on the topics of who uses small-dollar credit products, why people use them, and whether small-dollar credit use is optimal or rational. During the supply-side discussion, participants were asked to do the same on the topics of who supplies small-dollar credit, what affects supply, and what the emerging trends are among suppliers. Participants shared insights as to what research questions need to be answered so that policy can be made, especially at the federal level, to ensure that credit meets consumer need, is provided fairly and clearly, is viable for credit providers, and is available in appropriate amounts, forms, prices, and venues. The day concluded with a discussion of policy and administrative implications and future directions for research.

Using data from the Panel Study of Income Dynamics, this paper examines how households’ home equity extraction during the previous decade affected their spending and saving behavior. The study makes use of recently released 2009 housing and wealth data as well as the extensive data on household expenditures and balance sheets that are available starting in 1999. The results show that during the height of the house-price boom (the 2003–2005 period) a one-dollar increase in equity extraction led to 14 cents higher household expenditures. Households also spent 21 cents of their extracted equity on home improvements and additions and saved roughly 19 cents of each dollar extracted through balance-sheet reshuffling. The spending, saving, and residential investment patterns are similar during the 2001-to-2003 and 2005-to-2007 periods. There is less evidence of households’ extracting equity to fund expenditures prior to 2001, except for health care and transportation-related expenses. Overall, the results are consistent with households’ extracting equity to fund necessary expenditures and desired investments.

Abstract: The downturn in economic activity in the U.S. that began in December 2007 (as determined by researchers with the National Bureau of Economic Research) has been noticeably deeper and has already lasted considerably longer than the prior two recessions--those beginning in July 1990 and in March 2001. In addition, a key difference between the current and the past two recessions is the extent to which consumer spending and residential investment have dropped since late 2007--that is, the extent to which the household sector appears to have "led" the drop in aggregate economic activity in this recession. This paper uses household-level data from the Federal Reserve Board's series of Surveys of Consumer Finances to document three factors that appear to have contributed to greater financial stress in the household sector in the current downturn compared with the prior two: 1) substantial and widespread reductions in home values that resulted in sizable erosions of home equity and net worth for many homeowners; 2) markedly expanded holdings of corporate equity among middle-income households which lost significant market value, on net, as stock prices sunk; and, 3) greater debt on household balance sheets and overall financial vulnerability around the onset of the 2008-09 recession, particularly for those in the middle of the income distribution.

Since its enactment in 1975, the Home Mortgage Disclosure Act (HMDA) requires most mortgage lenders located in metropolitan areas to collect data about their housing-related lending activity, report the data annually to the government, and make the data publicly available. The information is collected annually from mortgage lenders by the Federal Financial Institution Examination Council (FFIEC). In 2011, over 16.3 million loan records for calendar year 2010 were reported by 7,923 institutions, including all of the nation’s large mortgage lenders. The Federal Reserve Board estimates that HMDA data cover 90-95% of Federal Housing Administration lending each year, and between 75-85% of other first lien home loans. As such, each year’s HMDA data are broadly representative of mortgage lending activity in the U.S. Data reported by each mortgage lender include the disposition of each mortgage application received (e.g., accept vs. reject), type and purpose of loan applications (e.g., home purchase vs. refinance), characteristics of each home mortgage originated or purchased during the year, the census-tract designations of the properties related to those loans, loan pricing information, personal demographic and other information about loan applicants (including race/ethnicity and income), and information about loan sales. Data are generally available online by geographic area and be mortgage institutions for each year from 1999 – present.