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  5. Intra-Household Consumption and Financial Decision-Making: Data and Empirical Analysis
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Intra-Household Consumption and Financial Decision-Making: Data and Empirical Analysis

Paper Session

Saturday, Jan. 6, 2024 2:30 PM - 4:30 PM (CST)

Convention Center, 305
Hosted By: American Economic Association
  • Chairs:
    Luis Viceira, Harvard University
  • Olivia Kim, Harvard University

Credit and the Family: The Economic Consequences of Closing the Credit Gap of US Couples

Olivia Kim
,
Harvard University

Abstract

Closing disparities in credit access between spouses can help reduce consumption inequality
in the household. The 2013 reversal of the Truth-in-Lending Act increased the borrowing
capacity of secondary earners in equitable-distribution states but not in community-property
states, where division-of-property laws superseded the policy change. Using a matched
difference-in-differences design and administrative financial-transaction records measuring
the credit and consumption of each spouse, I show that this reversal increased secondary
earners’ credit card limits by $1,025. In turn, spouses shared consumption more equally,
closing their pre-reversal consumption gap by 10 percent. Household spending shifted toward
goods that benefit both spouses. Delinquency rates were not measurably impacted,
suggesting that household financial standing did not worsen. These results are consistent
with a model of joint decision-making under limited commitment, in which credit causes a
shift in marital bargaining power.

Intra-household Credit Spillovers

Jialan Wang
,
University of Illinois-Urbana-Champaign
Feng Liu
,
Consumer Financial Protection Bureau

Abstract

Despite a rapidly growing literature on consumer financial markets in the United States, the study of financial interactions within households and between household members remains relatively sparse. In this paper, we trace these interactions by analyzing the impact of bankruptcy flag removals for one member of a household on connected borrowers, i.e., those that have shared at least one financial account with a former bankruptcy filer. In doing so, we also advance the frontier of using credit bureau data to explore personal and financial relationships between individuals. Starting from a sample of "main" Chapter 7 filers, we focus on connected borrowers who did not file for bankruptcy at the same time as the main filers. We classify about 61% of connected borrowers as likely partners/spouses, 17% as likely children, 14% as likely parents, and 7% as ambiguously connected based on detailed account codes, joint age distributions, and co-location. As shown by Gross, Notowidigdo and Wang (2020), the removal of bankruptcy flags from credit reports reliably occurs 117 months after Chapter 7 filings in the dataset we use and generates a sharp increase in credit scores and credit supply for the affected individuals. Using flag removal as a positive credit supply shock to the main filer, we estimate the spillover effects on connected borrowers.

Limited Marital Commitment and Household Portfolios

Jawad Addoum
,
Cornell University
Howard Kung
,
London Business School
Gonzalo Morales
,
Bank of Canada

Abstract

This paper examines the link between marital decisions, consumption, and optimal portfolio choice in a life-cycle model with limited marital commitment. Without full commitment, individual income shocks lead to renegotiation between spouses, altering relative bargaining power and endogenously generating time-varying risk aversion at the household-level. Consequently, changes in relative income are associated with significant shifts in household portfolios. We find strong support for this prediction using data from the PSID. The model can also rationalize the link between marital transitions and portfolio allocations observed in the data. Finally, the risk-sharing benefits of marriage imply a positive link between wealth and risky asset holdings across households.

Innovative Data in Intra-Household Financial Decision-Making

Jialan Wang
,
University of Illinois-Urbana-Champaign
Jawad Addoum
,
Cornell University
Taha Choukhmane
,
Massachusetts Institute of Technology
Menaka Hampole
,
Northwestern University
Leandro Carvalho
,
University of Southern California

Abstract

The last 30 minutes of the session will be dedicated to six five-minute presentations on novel intra-household datasets used by the authors studying the intersection of family economics and financial economics. Presenters will discuss novel datasets they have used to conduct intra-household research, what research questions they have explored, how they accessed the data and the opportunities and challenges of using this data. The discussion aims to promote more intra-household finance research by raising awareness of the availability and use of detailed intra-household financial transaction microdata, survey, or experimental data.

Discussant(s)
Abigail Adams-Prassl
,
University of Oxford
Taha Choukhmane
,
Massachusetts Institute of Technology
Cameron Peng
,
London School of Economics
JEL Classifications
  • G5 - Household Finance
  • D1 - Household Behavior and Family Economics