Essays in Consumer Finance

Abstract

This dissertation consists of three chapters, each representing a self-contained research paper within the consumer finance literature. Households that have low net worth have high marginal propensities to consume and, as such, are referred to as hand-to-mouth. In the first chapter, co-authored with Greg Kaplan and Gianluca Violante, we use survey data on household portfolios from multiple developed countries to document households that simultaneously hold very little liquid wealth and sizeable amounts of illiquid wealth. We find that these households have consumption responses to income shocks similar to traditional hand-to-mouth households, despite holding significant illiquid assets. The existence of these households has important implications for macroeconomic modeling and fiscal policy.

In the second chapter, co-authored with Ryota Hara and Takashi Unayama, we use the wealthy hand-to-mouth concept and look at Japanese data on household portfolios. We find that Japan has a very small share of hand-to-mouth households, much smaller than other developed countries. Similar to other developed countries, the lion's share of hand-to-mouth households have significant levels of illiquid assets. We find that the weatlhy hand-to-mouth have similar income and consumption age profiles to the relatively less constrained non-hand-to-mouth households.

In the third chapter, I use survey data and an estimated model of occupational choice to assess the impact of rising student debt on college graduates' earnings. I document a negative relationship between graduates' debt and income that is not explained by common joint determinants. The primary mechanism is debt induces graduates to enter employment faster and to select jobs in unrelated fields, resulting in lower income compared to debt-free peers. I also find that the rise in debt has contributed to income stagnation and basing debt repayment on income would likely benefit graduates, as it would be less distortionary on occupational choices.