Household Finance: Mortgage Markets, Consumer Debt, and Financial Vulnerability

Abstract

Household finance—the study of how households manage their financial resources including saving, investment, borrowing, and insurance decisions—is one of the most policy-relevant areas of financial economics, with direct implications for retirement security, housing market stability, and macroeconomic resilience. Campbell’s (2006) presidential address to the American Finance Association defined household finance as the examination of how households use financial instruments to achieve life-cycle objectives, documenting numerous systematic deviations from optimal financial behavior including non-participation in equity markets, under-diversification, failure to rebalance, and suboptimal mortgage choices. Mian and Sufi’s (2014) ‘House of Debt’ (University of Chicago Press) provided the most influential macroeconomic account of household balance sheet dynamics, demonstrating that the concentration of mortgage debt among lower-income, highly leveraged households was the primary driver of the 2008–2012 consumption collapse and recession severity.