Working Paper: NBER ID: w24854
Authors: John Beshears; James J. Choi; David Laibson; Brigitte C. Madrian
Abstract: This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities.
Keywords: household finance; behavioral economics; financial behavior; interventions
JEL Codes: D14; D15; G02; G11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Income changes (D31) | Consumption behavior (D10) |
| Liquidity constraints (E51) | Consumption behavior (D10) |
| Liquidity constraints (E51) | Borrowing to smooth consumption (D15) |
| Present bias (D15) | Under-saving (D14) |
| Present bias (D15) | Over-borrowing (F65) |
| Present bias (D15) | High levels of credit card debt (G51) |
| Behavioral biases (D91) | Suboptimal participation in stock markets (G19) |
| Lack of financial literacy (G53) | Suboptimal financial choices (G11) |