Consumer Finance

We study the borrowing, saving and consumption decisions of American households in order to develop a framework for understanding historical behavior and predicting future patterns. Recent papers have examined mortgage finance markets and the effects of credit contsraints on household decisions.

In this essay, Richmond Fed economist Kartik Athreya discusses the modern approach to consumer finance, from its beginnings in the 1930s, when it was primarily concerned with explaining consumer behavior to the present, where the details of how households rearrange their resources, i.e. "finance," is finally getting its due.

January 2014, No. 14-01

Does Greater Inequality Lead to More Household Borrowing? New Evidence from Household Data

Olivier Coibion, Yuriy Gorodnichenko, Marianna Kudlyak and John Mondragon

August 2013, No. 13-09R

Are Young Borrowers Bad Borrowers? (Revised June 2014)

Peter Debbaut, Andra C. Ghent and Marianna Kudlyak

October 2011, No. 11-06

Loan Guarantees for Consumer Credit Markets

Kartik B. Athreya, Xuan S. Tam and Eric R. Young

June 2010, No. 10-11

The Role of Non-Owner-Occupied Homes in the Current Housing and Foreclosure Cycle

Breck Robinson and Richard M. Todd

May 2010, No. 10-10

Housing Default: Theory Works and So Does Policy

Allen C. Goodman and Brent C Smith

April 2009, No. 09-5

Credit and Self-Employment

Kartik B. Athreya and Ahmet Akyol

August 2003, No. 03-2

Risky Higher Education and Subsidies

Ahmet Akyol and Kartik B. Athreya

October 2014, No. 14-10

Investing over the Life Cycle: One Size Doesn't Fit All

Tim Sablik

December 2013, No. 13-12

How Risky Are Young Borrowers?

Peter Debbaut, Andra C. Ghent, Marianna Kudlyak and Jessie Romero

January 2013, No. 13-01

All Mortgages Are Not Created Equal

Karl Rhodes and Breck Robinson

January 2012, No. 12-01

Where Are Households in the Deleveraging Cycle?

R. Andrew Bauer and Betty Joyce Nash

March 2009, No. 09-03

Rationalizing Financial Literacy Policy

Kartik B. Athreya and Anne Stiwell

Recent Research

A selection of important recent research in consumer finance. The list is in chronological order by date of publication, with the most recent first. In some cases, links are provided to an earlier version of the journal article.

An overview of recent developments in the emerging field of household finance
Guiso, Luigi and Paolo Sodini. "Household Finance. An Emerging Field." Einaudi Institute for Economic and Finance Working Paper 1204 (2012).

An analysis of a household's mortgage default decision and the factors affecting the likelihood of default
Campbell, John. Y. and Joao. F. Cocco. "A Model of Mortgage Default." National Bureau of Economic Research Working Paper 17516 (October 2011).

An alternative account of stock-ownership over the life-cycle, based on learning and ambiguity about stock returns
Campanale, Claudio. "Learning, Ambiguity, and Life-Cycle Portfolio Allocation." Review of Economic Dynamics 14, no. 2 (April 2011): 339-367

What do economists know about household spending over the life-cycle?
Attanasio, Orazio P. and Guglielmo Weber. "Consumption and Saving: Models of Intertemporal Allocation and Their Implications for Public Policy." Journal of Economic Literature 48, no. 3 (September 2010): 693–751.

An explanation for the relatively limited participation of U.S. households in the stock market
Davis, Steven J., Felix Kubler, and Paul Willen. "Borrowing Costs and the Demand for Equity Over the Life Cycle." Review of Economics and Statistics 88, no. 2 (2006): 348-362.

John Campbell's presidential address to the American Finance Association
Campbell, John Y. "Household Finance." The Journal of Finance 61, no. 4 (August 2006): 1553-1604.

How well can we account for portfolios over the life cycle?
Cocco, Joao F., Francisco J. Gomes and Pascal J. Maenhout. "Consumption and Portfolio Choice Over the Life Cycle." Review of Financial Studies 18, no. 2 (Summer 2005): 491-533.

How household portfolios differ across nations
Guiso, Luigi, and Michael Haliassos, and Tullio Japelli. Household Portfolios. Cambridge, Mass.: The MIT Press, 2003.

An analysis of the tradeoffs involved for households choosing among mortgage products
Campbell, John Y., and Joao F. Cocco. "Household Risk Management and Optimal Mortgage Choice." Quarterly Journal of Economics. 118, no. 4 (2003): 1149-1494.

The importance of risk, retirement, and bequests in the distribution of wealth in the United States
Castaneda, Ann, Javier Diaz-Gimenez and Jose-Victor Rios-Rull. "Accounting for the U.S. Earnings and Wealth Inequality." Journal of Political Economy 111, no. 4 (August 2003): 818-857.

A new explanation of credit card-borrowing behavior
Gross, David B. and Nicholas S. Souleles. "Do Liquidity Constraints and Interest Rates Matter for Consumer Behavior? Evidence from Credit Card Data." Quarterly Journal of Economics 117, no. 1 (February 2002): 149-185.

A formal, "structural" estimation of a rich consumption model
Gourinchas, Pierre-Olivier and Jonathan A. Parker. "Consumption Over the Life Cycle." Econometrica 70, no. 1 (January 2002): 47-89.

Historical Research

The following texts, including influential works by Irving Fisher, Milton Friedman and Robert Lucas, provide a foundation for understanding the economics of consumer finance. They are presented in chronological order by date of publication, with the oldest first.

Irving Fisher's seminal work on consumer finance
Fisher, Irving. Theory of Interest. New York: Macmillan, 1930.

Milton Friedman formalizes the "permanent income" hypothesis
Friedman, Milton. A Theory of the Consumption Function. Princeton, N.J.: Princeton University Press, 1957.

The "life-cycle" hypothesis is refined
Ando, Albert and Franco Modigliani. "Tests of the Life Cycle Hypothesis of Saving: Comments and Suggestions." Oxford Institute of Statistics Bulletin 19 (May 1957): 99-124.

The "Lucas Critique," reinforcing the importance of rational expectations
Lucas, Robert E. "Econometric Policy Evaluation: A Critique." Carnegie-Rochester Conference Series on Public Policy 1 (1976): 19-46.

Liquidity constraints appear to be necessary to reconcile data with the "permanent income" hypothesis
Hall, Robert E. and Frederic Mishkin. "The Sensitivity of Consumption to Transitory Income: Estimates from Panel Data on Households." Econometrica 50, no. 2 (March 1982): 461-481.

The consumer finance problem analyzed without liquidity constraints
Zeldes, Stephen P. "Consumption and Liquidity Constraints: An Empirical Investigation." Journal of Political Economy 97, no. 2 (April 1989): 305-346.

An innovative model helps explain empirical rejections of consumer finance theory
Deaton, Angus. "Saving and Liquidity Constraints." Econometrica 59, no. 5 (September 1991): 1221-1248.

Measuring how much individual uncertainty matters to national savings
Aiyagari, S. Rao. "Uninsured Idiosyncratic Risk and Aggregate Saving." The Quarterly Journal of Economics 109, no. 3 (August 1994): 659-684.

How public policy creates powerful incentives to discourage savings for some groups
Hubbard, R. Glenn, Jonathan Skinner and Stephen P. Zeldes. "Precautionary Saving and Social Insurance," Journal of Political Economy 103, no. 2 (April 1995): 360-399.

Standard consumer finance theory tested in an environment without certainty equivalence
Carroll, Christopher D. "Buffer Stock Saving and the Life Cycle/Permanent Income Hypothesis." The Quarterly Journal of Economics 112, no. 1 (February 1997): 1-55.

Contact Us


Research Department
(804) 697-8000