Household Borrowing Research Articles

Financial Literacy and Household Borrowing Behavior Based on an Analysis of China Household Finance Survey Data

Financial Literacy and Household Borrowing Behavior Based on an Analysis of China Household Finance Survey Data

The Kuroda Bazooka

In this study, we examine the impact of the monetary easing policy announced by the Bank of Japan on October 31, 2014 on households’ willingness to borrow. This policy, called the Kuroda Bazooka, was not anticipated by the private sector, so it can be regarded as an exogenous shock. We use an interrupted time-series analysis to estimate the effects of the Kuroda Bazooka, a technique often used in medicine but not yet widely used in economics. The analysis of the data before and after the shock show that the Kuroda Bazooka increased household borrowing intention by about 10%.

Advantageous Selection in Fintech Loans

Using data from the largest peer-to-peer (P2P) lender in the United States, I document advantageous selection in loan amount. By exploiting a natural experiment within the platform, I show that borrowers who select larger loans are less likely to default. This selection is driven by households who live in states with bankruptcy-friendly laws, where borrowers' default costs are lower. Standard models where borrowers maximize their utility cannot rationalize my results and make the opposite prediction. In a simple model of household borrowing, I show that my results can be explained by the fact that borrowers facing higher loan prices search more intensively for cheaper loans. This effect is stronger for the safest borrowers, as they enjoy the greatest benefits from the switching.

The Impact of Borrower-Based Instruments on Household Vulnerability in Germany

Excessive household borrowing has been identified as an important determinant of financial crises. Borrower-based macroprudential instruments have been proposed as a possible remedy. In Germany, two instruments have been available to macroprudential supervisors since 2017: a cap on the loan-to-value (LTV) ratio and an amortization requirement, but none of them has been activated so far. Therefore, this paper presents a simulation tool that allows the impact of activating of borrower-based instruments to be evaluated ex ante. The simulation is based on microdata from the German Panel on Household Finances (PHF) and is at the same time calibrated to match aggregate developments in the residential real estate market. This micro-macro consistent simulation approach can be used to detect vulnerabilities in household balance sheets and perform an ex ante analysis of the activation and calibration of borrower-based macroprudential instruments. An illustrative example of a hypothetical activation shows that the introduction of a cap on the loan-to-value (LTV) ratio of new mortgage loans in Germany could improve important indicators of household vulnerability.

Contestable Credit Markets and Household Welfare: Panel Data Evidence from Ethiopia

This paper explores the impact of credit constraints on household welfare in Ethiopia. We use a three-wave panel dataset for rural and small-town households to estimate the effects of household borrowing constraints on two alternative indicators of household welfare: consumption expenditure and asset ownership. The presence of a constraint is treated as an endogenous regressor, using an instrumental variable based on Baumol’s theory of contestable markets. We find that credit constraints have a significantly negative effect on both outcomes. These results are robust to several alternative specifications of the model.

Financial or Non-financial Shocks: Rivals That Play Together

This paper estimates a DSGE model to explore how the economy is affected by financial and non-financial shocks. Bayesian methods and data from the US corroborate the results. This paper first illustrates how the financial sector is not only a transfer channel for exogenous shocks to the real economy, but also a contributor to business cycles through banks’ asset reallocation channel and the quality of capital adequacy constraint. The paper then shows that the contribution of financial and non-financial shocks has varied before, during and after the recent financial crisis; housing demand and asset price shocks are the main contributors and the credit shocks are the most persistent. In addition, the paper presents the application of macroprudential tools, along with their impact on the economy in general, and on welfare in particular. The findings illustrate that the tools which control household borrowing ability, such as loan-to-value or debt-to-income ratios, do not impact welfare significantly. However, the impact of policies on the leveraged sector is substantial. The paper proposes macroprudential policies that allow policy makers to stabilize the economy without changing welfare. Such policies, however, should be timely, targeted and temporary, otherwise they may cause disruptions.

Microfinance Participation in Thailand

Income inequality is a major problem in Thailand. A key determinant of income inequality in Thailand is the lack of financial access to financial institutions for low-income families. Microfinance institutions (MFIs) play an important role in enabling poor households to access financial resources at a reasonable cost. The purpose of this paper is to investigate factors that affect Thai households participating in microfinance programs in Thailand. A multinomial logit model is used to investigate the factors that impact the Thai households’ access to microfinance. The study employs secondary data from the Thai Socioeconomic Survey (cross-sectional data in 2017) to identify factors affecting Thai household participation in microfinance programs. The results show that the Village Fund (VF) targets low-income rural households and encourages those with older household heads who have lower levels of education, and female household heads, to participate in their program. Larger households are more likely to access the VF. Households with higher dependency ratios are less likely to borrow from the VF. Households with well-educated, young household heads in regional areas are more likely to borrow money from Saving Groups for Production (SGPs). SGP borrower households have higher household incomes than VF borrower households. Our findings indicate that VFs and SGPs are credit sources in the rural credit market; these sources enable rural households to access credit to meet their needs. In addition, rural Thai households borrow from many sources so that they can rotate their loan repayments. Low-income households refinance their loans by borrowing from different sources.

Limited liability and investment: Evidence from changes in marital property laws in the US South, 1840–1850

We study the impact of marital property legislation passed in the US South in the 1840s on households’ investment in risky, entrepreneurial projects. These laws protected the assets of newly married women from creditors in a world of virtually unlimited liability. We compare couples married after the passage of a marital property law with couples from the same state who were married before. Consistent with a simple model of household borrowing that trades off agency costs against risk sharing, the effect on investment was heterogeneous. It increased if most household property came from the husband and decreased if most came from the wife.

Financial Insecurity in a World of Plenty

The U.S. economy is addicted to the simulative impacts of household borrowing. Household debt has grown dramatically since the 1990s and has served to mitigate the detrimental effects of stagnant household wages. The accumulation of this debt has also had the macroeconomic impact of stimulating the economy, pushing it closer towards full employment. However does full employment stimulated by household indebtedness actually represent economic progress? It is argued that even the poorest citizen in a modern industrialized society is better off than a king of feudal Europe, yet in the United States such material prosperity is often tied to social insecurity thanks to debt. The growth of this debt has been enabled by a financial system that has evolved dramatically over the past forty years. The U.S. financial system’s primary role is no longer to finance investment but is rather a tool that enables a separation of ownership from use. Debt has fueled corporate profits which have enriched the shareholding class while at the same time the system has reduced the financial security of the majority of workers. This article crystalizes these issues by analyzing the differentials in financial circumstances faced by workers and shareholders in several major U.S. firms.

Local financialization, household debt, and the great recession

AbstractTo test the relationship between local financial sector activity and household borrowing, I exploit the credit‐supply shock that occurred prior to the Great Recession as a plausibly exogenous source of variation in borrowing behavior. Using a difference‐in‐differences approach I find that per‐capita indebtedness increased by several thousand dollars—approximately 10%—more in states with a large local financial sector during the housing market boom. A similar positive relationship between financialization and indebtedness holds at the county level. These results suggest the growing influence of local financial markets as a fundamental cause of the Great Recession.

Greater Inequality and Household Borrowing: New Evidence from Household Data

Abstract Using household-level debt data over 2000–2012 and local variation in inequality, we show that low-income households in high-inequality regions (zip codes, counties, states) accumulated less debt relative to their income than low-income households in lower inequality regions. We also find evidence that low-income households face higher credit prices and reduced access to credit as inequality increases. We argue that these patterns are consistent with inequality tilting credit supply away from low-income households and toward high-income households, which may have long-run implications for outcomes like homeownership or entrepreneurship.

Marginal Net Taxation of Americans’ Labor Supply

The U.S. has a plethora of federal and state tax and benefit programs, each with its own work incentives and disincentives. This paper uses the Fiscal Analyzer (TFA) to assess how these policies, in unison, impact work incentives. TFA is a life-cycle, consumption-smoothing program that incorporates household borrowing constraints and all major federal and state fiscal policies. We use TFA in conjunction with the 2016 Federal Reserve Survey of Consumer Finances to calculate Americans’ remaining lifetime marginal net tax rates. Our findings are striking. One in four low-wage workers face marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. The richest 1 percent also face a high median lifetime marginal tax rate – roughly 50 percent. Double taxation matters. The overall median lifetime marginal net tax rate is 43.2 percent compared with an overall current-year marginal net tax rate of 37.6 percent. We also find remarkable dispersion in both lifetime and current-year marginal net tax rates, particularly among the poor, and major differences in marginal and average net taxation across states, providing typical households a large incentive to relocate to another state.

Public Debt Expansions and the Dynamics of the Household Borrowing Constraint

Contrary to a well-established view, public debt expansions may tighten the household borrowing constraint over time. Within an incomplete-markets model featuring an endogenous borrowing limit, we show that plausible debt-financed fiscal policies generate such tightening through an increase in the interest rate. The tightening makes constrained agents deleverage and reinforces the precautionary saving motive of the unconstrained. This appetite for assets affects factor prices and this, in some cases, amplifies the households' reactions to the policies. For example, the tightening can substantially magnify the government spending multiplier by strengthening the typical negative wealth effect on labor supply induced by the fiscal stimulus. Moreover, the tightening affects political support for the policies mainly through price effects.

השפעות צעדי רגולציה מגינה בישראל על התנהגות משקי הבית בלקיחת משכנתאות <br>The Impact of Protective Mortgage Regulations on Household Borrowing Decisions

תקציר בעברית: בעשור האחרון החיל בנק ישראל שורה של צעדים רגולטוריים הגנתיים בתחום המשכנתאות, וזאת במטרה להגן על יציבות המערכת הבנקאית מסיכונים הנובעים מיכולותיהם הפיננסיות של נוטלי המשכנתאות ומתנודות בשוק הנדלן המקומי. מטרת המחקר היא לאמוד אמפירית את יעילותם והשפעתם של הצעדים הרגולטוריים האלו על ידי בחינת השפעתם על החלטות נוטלי המשכנתאות באותה התקופה. לצורך בחינה זו נעשה שימוש במאגר נתונים מפורט וייחודי שנתן לנו בנק ישראל, המתאר את דפוסי נטילת המשכנתאות בישראל בתקופה שבין 2012–2016, שבה ננקטו צעדים רגולטוריים רבים ותכופים. בפרט נבחנו שלושה צעדים רגולטוריים שונים, הכוללים הגבלת שיעורי המינוף ( Loan-To-Value ¬¬¬¬– LTV וקביעת שיעורים דיפרנציאלים ללווים שונים, שינוי ביחסי הלימות ההון של הבנקים במשכנתאות, הגבלת שיעור ההחזר מתוך הכנסת הלווה (Payment-To-Income – PTI), הגבלת חלקה של ההלוואה שניתן ללוות בריבית משתנה ולבסוף הגבלת משך חיי המשכנתא המקסימלי. לאחר השלמת הבחינה האמפירית נמצא שחלק מהצעדים הרגולטוריים השפיעו על החלטות הלווים כפי שציפו הרגולטורים ובכך הביאו להפחתת הסיכון המערכתי בשוק המשכנתאות. עם זאת ובניגוד לצפוי, חלק מהצעדים הרגולטוריים הובילו לתוצאה הפוכה מזו שנועדו להביא אליה, והשפעתם על החלטות הלווים הביאה להגדלת הסיכון המערכתי בשוק המשכנתאות. כך, הגבלת משך חיי המשכנתה המקסימלי הביאה דווקא לעלייה במשך החיים הממוצע של משכנתאות בישראל; כמו גם הגבלת שיעור ההחזר מתוך הכנסת הלווה (PTI) שהביאה להגדלתו של ממוצע שיעור זה בקרב הלווים. אנו מציעים הסבר התנהגותי לתופעה זאת שלפיו מדובר בהשפעה של יוריסטיקת העיגון (Anchoring). קביעת רף מקסימלי למשך חיי המשכנתה או לשיעור ההחזר מתוך ההכנסה יצרה עוגן ללווים לרף ״המומלץ״, אשר העלה הן את משך חיי המשכנתה הממוצע והן את שיעור ההחזר מתוך ההכנסה הממוצעת בישראל.

China’s Rising Household Debt: A New Debt Trap?

Household debt in China has risen rapidly in recent years, mostly driven by mortgages but also by ongoing financial deepening and liberalisation which facilitate economic rebalancing towards more consumption. Although the risks to financial stability do not seem large at the time of writing, the sharp rise in household debt has raised some concerns, as high household borrowing could increase macro-financial risks, particularly given the US-China trade tensions and the ongoing coronavirus pandemic that has resulted in weaker employment and export market. Rising household debt will add to medium- to long-term challenges for China’s domestic consumption and the financial sector. The authorities have so far implemented measures to lessen the risk of a sharp housing correction in the short-run.

Public debt expansions and the dynamics of the household borrowing constraint

Contrary to a well-established view, public debt expansions may tighten the household borrowing constraint over time. Within an incomplete-markets model featuring an endogenous borrowing limit, we show that plausible debt-financed fiscal policies generate such tightening through an increase in the interest rate. The tightening makes constrained agents deleverage and reinforces the precautionary saving motive of the unconstrained. This appetite for assets impacts factor prices which, in some cases, amplify the households' reactions to the policies. For example, the tightening can substantially magnify the government spending multiplier through strengthening the typical negative wealth effect on labor supply induced by the fiscal stimulus. Moreover, the tightening affects the political support to the policies mainly through price effects.

The Financial Lives of Families. How Credit Regimes and Welfare States Shape Household Indebtedness

Debt has become an essential part of many people's daily lives. This paper develops a new comparative political economy perspective on the relationship between welfare states and household borrowing. I argue that the ways in which welfare states distribute benefits and credit regimes provide access to credit affect how individuals address social risks and, as a consequence, shape patterns of indebtedness. Permissive credit regimes substitute for social policies in limited welfare states, pushing economically disadvantaged groups into debt. Alternatively, credit markets complement social policies in the provision of financial liquidity in comprehensive welfare states, protecting vulnerable groups through government benefits while allowing less-protected affluent groups to borrow money. In restrictive regimes, people instead rely on savings, expenditure cuts, and family support. I test these arguments using an original measure of credit regime permissiveness, cross-national survey data, and full-population administrative records from Denmark and panel data from the United States.

SOCIO-ECONOMIC EFFECTS OF MICROFINANCE OF GRAMEEN BANK ON BORROWER HOUSEHOLDS IN BOGRA DISTRICT OF BANGLADESH

The study is an attempt to examine the socio-economic effects of microfinance of Grameen Bank (GB) on borrower households in the study area. It investigates socio-economic changes occurred among the borrower households in the reference time period. In this regard this study collects required information from 168 respondents in the study area using a structured questionnaire. The collected data were analyzed by using statistical techniques such as descriptive statistics, ANOVA test, Participation Impact Score (PIS) and Standardized Participation Impact Score (SPIS). The ANOVA test is performed to examine the association between microcredit and various socio-economic factors of borrower households and GB’s loan amount. Analysis of the study show that average monthly income, average monthly expenditure, total savings, asset value and other socio-economic status of borrower households increased after joining the groups of Grameen Bank (GB). The results of PIS or SPIS indicate that ‘improved participation in family decision-making’ received the highest score among selected 16 items impacts areas while ‘increased counting ability’ bears the lowest score. In spite of some barriers of GB’s microcredit, it has a positive contribution on socio-economic status of the borrower households in terms of increased income generation and improved livelihood of the borrower households.

Micro-health insurance in dentistry: the road less travelled

Oral health is indeed a challenge for the urban poor. Majority of the patients spend from their pocket, which aggravates their financial condition. It is paramount for the government and the healthcare industry to adopt a value-based approach to redress the oral health lapses for the underserved population. Micro health insurance (MHI) can have a game changing effect on the oral healthcare space too, if concerned stakeholders build the right partner network. Aim of the study was to discuss the principal features, basic structure, and functioning of a few MHI schemes, and presents a hypothetical model of MHI which can be implemented in dentistry. Literature search was conducted in two main databases, pubmed and cochrane, using key phrases such as “community based health insurance,” “micro health insurance,” micro or community based health insurance,” and “health insurance and financial protection”. Articles published in last ten years with full texts were considered. 23 schemes were eligible for the systematic review. Our analysis shows that MHI, in the majority of cases, contributes to the financial protection of its beneficiaries, by reducing out of pocket health expenditure, catastrophic health expenditure, household borrowings and poverty. However, the studies did not affirm oral health benefits. The importance of oral healthcare in India is superficial. Focus on oral healthcare can be achieved only if the impending cost due to out of pocket payments can be supplanted with a more affordable and dynamic payment model. With MHI extended to oral healthcare, India can certainly achieve its SDG goal. It’s time to look beyond.

Republic of Croatia

This Article IV Consultation highlights that the economic expansion continues, driven primarily by private consumption and exports of goods and services. Discussions primarily focused on increasing the economy’s flexibility and resilience. Fiscal performance has been strong, however, the materialization of contingent liabilities from government guarantees is likely to reduce the overall surplus. Low public and private investment, and continued emigration appear to weigh on medium-term growth prospects. Downside risks in the near-term stem could be due to possible changes in regional or global economic and financial conditions, and the further realization of contingent liabilities. The IMF staff advocated for a moderately faster fiscal adjustment. The report recommends accelerating the pace of debt reduction that would build fiscal space and help reduce downside risks. The Central Bank may need to address potentially tighter external conditions while continuing with strong bank supervision and macroprudential policies. Additional measures to prevent excessive household borrowing could be considered if needed.