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By Kirk Kardashian
December 12, 2022
With high inflation at the fore for consumers and businesses, and the Fed’s actions to manage it by raising interest rates, the academic area of family finance is proving its worth.
Brian Meltzer, who joined the Tuck finance faculty in 2018, teaches real estate options.
Tuck Associate Professor Brian Meltzer studies family finance, particularly home mortgages, real estate investments, financial counseling and consumer financial regulation. While the environment is now a major topic in finance, it wasn’t always that way. Meltzer was one of the first economists to focus on this.
Meltzer was first drawn to family finance in 1998. In the early 2000s, he was working as a research analyst covering financial services companies. One day, the firm listened to a presentation from a payday lender and pawn shop company it was analyzing. The company specializes in high-interest consumer loans for people who don’t have access to regular bank credit. I wonder what made them borrow it and why they didn’t find other cheaper options.
says Meltzer. It really surprised me that I wanted to go back and study these things.
A few years later, Meltzer began a PhD program at the University of Chicago, focusing on the area of startup family finance. He taught at the Kellogg School of Management from 2008 to 2017 and In 2018, he joined the finance faculty at Tuck, where he teaches real estate options.
Following is an edited and condensed discussion with Melzer on the basics of family finance based on his recent speech at the 28th Annual Conference of the German Finance Association.
What is family finance?
I think of it as a study of family financial behavior. It includes a few important dimensions: the study of the consequences of home finance decisions, the quality of the decisions (are they making good choices that allow them to grow their wealth over time and avoid high-cost borrowing?) and the factors that determine their shape. Decisions. It also includes how financial intermediaries such as banks and advisors interact with families and the financial services people use to achieve their goals, and the rules and policies that govern those interactions.
When did family finance research begin?
By the mid-1990s there were a handful of professors and by the early 2000s there were 30 scholarly articles published annually on family finance. In the past few years, more than 25 recent PhD graduates from top-30 business schools have listed family finance as a research interest, and there are more than 200 family finance-related journals published annually.
What are the factors driving growth in the field?
The biggest thing on the asset side is moving toward defined contribution retirement savings (like 401ks) and away from defined benefit plans. What it does is let the family guide the investment choices that used to be made by a professional pension fund manager. That’s been going on for a long time, but more and more properties are being run by family-runs and run by outside experts. This is why financial intermediaries are so important.
On the credit side, the financial crisis was a major catalyst for research growth in this area. In the past, macroeconomists did not think much about the financial sector: the role banks play or the role credit plays in household consumption decisions. But suddenly it became clear that the delinquency and excesses associated with past lending and the financial crisis were actually having meaningful overall macroeconomic effects.
What are the future research opportunities in family finance?
Some tailwinds remain. The financial crisis is far behind us, and data growth has slowed. But the importance of research in this area continues, because there are some new incentives. Advances in financial technology have been a major driver in changing the way households interact with financial markets. Robo-advisory and automated investment strategies that take humans out of the process or change the way they fit into that process are exciting developments and important to study.
I also think the development of machine learning techniques to collect and model data and make predictions – for credit underwriting and credit delivery – is very important. There was an interesting tension between allowing innovation and ensuring that innovation didn’t run afoul of fair credit laws.
What are you doing these days?
My research has recently gone in two directions: banking regulations and the gig economy. I have a new working paper on the impact of unbanked interest rate caps on low-income households and the unbanked, proving that banks are more willing to offer their accounts when they pay a higher subsidy for free. In another working paper, we study the growth of the gig economy and its sometimes detrimental effects on access to credit for gig workers.
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