Household Finance & Retail Banking


Coordinator: N.N.

The past two decades have witnessed increased participation of households in a broader range of risky assets than before, including both financial and real assets, as well as increased participation in consumer debt, including uncollateralized credit card debt. Increased involvement in risky financial assets arose mainly because of asset price upswings in the 1990s; because of the demographic transition that is forcing households to save more for retirement; because of financial innovation; and because of government policies related to the provision of tax incentives, so that people participate in newly established individual retirement saving schemes. Yet this broadening of portfolios brings with it a host of challenges to individual investors but also to the financial industry, the policy makers, and regulators.

In the area "Household Finance & Retail Banking", we study the way in which households of diverse backgrounds and financial sophistication decide which assets to hold, what proportion of their wealth to devote to each asset, how to finance their spending through borrowing, and how to combine assets of various types and riskiness with debts. We deal with the role of financial literacy, advice, and regulation; of social interactions, trust and culture; of financial innovation and complexity in shaping household financial behavior. We study the potential of Finance to improve the ability of households to manage the multiple risks they face and to enjoy economic well-being.

The networking activities of this CFS research area have contributed to the development of a strong European network of researchers in household finance, with close links to the U.S. and with developing links to Australia and Asia. A 2010 CFS research conference on household finance, held in Athens, has now evolved into the European Household Finance Conference regularly involving researchers from all the top departments in household finance in Europe, as well as from the NBER in the U.S. The network includes institutions such as EIEF (Rome), CSEF (Napoli), Said Business School (Oxford, UK), the Swedish House of Finance, HEC Paris, London Business School, Aalto University (Finland), and Imperial College London. Network researchers have fruitful interactions with central banks and other financial institutions, private and public, notably with the Household Finances and Consumption network run by the European Central Bank.