Borrowing Capacity and Financial Decisions of Low‐to‐Moderate Income First‐Time Homebuyers

This study documents the extent to which first‐time homebuyers seeking a mortgage accurately estimate their borrowing capacity and how this is associated with their decisions regarding mortgage debt and the take‐up of a free offer of financial coaching. We find that consumers who underestimate their nonmortgage debt (31.5% of the sample) also take out larger mortgages relative to income. Consumers who underestimate or overestimate their total debt as well as their monthly debt payments are more likely to accept the offer of financial coaching. Moreover, overconfidence in financial matters reduces the take‐up of financial coaching. These biases in perceived financial status appear to be systematically related to behavior among a group of relatively inexperienced consumers. These findings suggest that efforts to extend homeownership may need to include debiasing mechanisms to help less informed consumers accurately assess their current debt levels and ability to make ongoing mortgage payments.     

Using the Family Self‐Sufficiency Program to Help Families with Housing Assistance Improve Earnings,Credit Score,and Debt Levels: A Quasi‐Experimental Analysis

HUD's Family Self‐Sufficiency (FSS) program aims to help housing assistance recipients increase their earnings and build savings to make progress toward economic security. This study examines an asset‐building nonprofit's innovative financial coaching‐based approach to FSS that adds an additional focus on helping clients build assets and financial capability. We use a quasi‐experimental approach to estimate the program's impact on earnings and cash assistance receipt and analyze credit and debt outcomes against a benchmark group. The findings show substantial, significant gains in households' earnings and significant decreases in receipt of some cash benefits. Participants also saw increases in credit score, and success in paying down credit card and derogatory debt. Our results indicate that FSS can be an effective platform for helping participants in subsidized housing make real progress toward economic security and financial health.     

Budget over health unless overweight: A Solomon four‐group study

Budget and health motivations for food purchase (e.g., discounts and health consciousness, respectively) affect consumer choice while shopping and well‐being afterward. However, not all findings from research have suggested that discounts/taxations on healthy/unhealthy food encourage health‐conscious food choice. On the other hand, the consumer behaviour line of research on the influence of front‐of‐package health messages has mostly echoed similar results that such communication leads to overconsumption; thus, obesity. We examined the influence of market practices targeting consumers’ budget and health‐related motivations for food purchase in a 2 (price: recommended retail price, discount price) × 2 (product: regular potato chips, potato chips with ‘75% less saturated fat’) experiment using six Solomon four‐group designs. Our results indicate that overweight consumers are not prone to discounts, unlike their normal‐weight counterparts. A price cut nullifies the influence of health messages on purchase intentions among normal‐weight buyers when the regular and healthier packaged foods are both on discount.     

A Profile of Financially At‐Risk College Students

Using a random sample of college students, this study identifies the factors that significantly affect the probability a college student is financially at risk for mismanaging/misusing credit. Financially at‐risk students are more likely to be financially independent, to receive need‐based financial aid, to hold $1000 or more in other debt, and to have acquired their credit card(s) by mail, at a retail store, and/or at a campus table. Students having difficulty making credit card payments are also more likely to be female, black, and/or Hispanic. Campus administrators and financial professionals can use this information to better allocate their resources and develop materials that specifically target those students who need them most.     

Reducing non‐attendance at specialist clinics: an evaluation of the effectiveness and cost of patient‐focussed booking and SMS reminders at a Scottish health board

The aim of the paper is to test the effectiveness of patient‐focussed booking and last minute reminders using short message service (SMS) messages to reduce non‐attendance at consultant outpatient clinics, and to estimate their cost to the service provider per non‐attendance [did not attend (DNA)] avoided. Non‐attendance is modelled in terms of patient‐focussed booking, reminders and a variety of control variables on new and return appointments at one health board in Scotland over a 14‐month period. Patient‐focussed booking and last minute reminders reduced non‐attendance. We find patient‐focussed booking demonstrated the importance of booking appointments no more than 6 weeks in advance, and would incur recurrent costs of £6 ($9.15, €6.73) compared with the status quo, assuming the DNA rate with neither initiative were 10%. Requiring patients also to opt in would cost an additional £200 ($305, €224). Coverage in terms of SMS reminders was limited both in respect to contact details and spread of cellphone ownership, but incurs no recurrent costs when the in‐house network, NHSmail, is used. Interactive voice response is an alternative to SMS reminders: it could achieve wide coverage, but at a cost of £5.50 ($8.39, €6.17) per DNA avoided. We conclude that SMS reminders and booking appointments no more than 6 weeks in advance can be effective and low‐cost ways to reduce non‐attendance. It is questionable whether patients should be required to opt in, unless this is by far the best way to obtain cellphone contact details. Otherwise. interactive voice response might be considered as the preferred method to send last minute reminders.     

First‐Year Impacts on Savings and Economic Well‐Being from the Assets for Independence Program Randomized Evaluation

Individual development accounts (IDAs) help low‐income families save by providing a savings account and a potential match toward personal savings for specific investments, such as a first home, business capitalization, or postsecondary education and training. The Assets for Independence (AFI) program uses AFI IDAs—commonly coupled with financial education—with the goal of helping low‐income households achieve greater self‐sufficiency. Using a randomized controlled trial, we evaluate the impact of AFI after one year and find that the median level of liquid assets was $657 higher for the treatment group than the control group (before matching funds). We also find that the treatment (vs control) group experienced less material hardship (by 34%) and was less likely to use nonbank check‐cashing services (by 39%).     

A DYNAMIC ANALYSIS OF DEBT‐LED AND DEBT‐BURDENED GROWTH REGIMES WITH MINSKIAN FINANCIAL STRUCTURE

In this paper, we formally derive a version of the Minskian taxonomy of the firms' financial structure (hedge, speculative and Ponzi types), under the economic growth context in the long run. As for the economic growth, we formalize the mechanism of debt‐led (debt‐burdened) growth where the economy expands as the debt variables increase (decrease). By explicitly introducing the relationship between the finance growth regime and Minskian taxonomy in a dynamic model, the model in this paper enables us to evaluate whether or not the economic growth regime is sounded in terms of the firms' financial positions.     

The Effects of Ownership Structure on Corporate Financing Decisions: Evidence from Stock Market Liberalization

We analyze the impact of firm‐specific stock market liberalization events on the capital structure and debt maturity decisions of firms from emerging market economies. We differentiate between firms based on their ownership structures at the time of liberalization and analyze their post‐liberalization behavior regarding corporate financing decisions. Our empirical results show that single–class‐share firms (typically with stronger corporate governance and better information environments) respond differently to their dual–class‐share counterparts. Liberalization results in lower debt reliance for the former group while the latter lengthen the maturity of their debt portfolios. Jel Classification: F30; G15; G32.     

The Effect of Government Spending on the Debt‐to‐GDP Ratio: Some Keynesian Arithmetic

According to the standard approach to the issue of public debt sustainability, fiscal austerity is the route that many countries must currently follow to reduce their debt‐to‐GDP ratios back to sustainable paths. We challenge this conventional wisdom and argue that, below full employment, an increase in government spending may paradoxically reduce the debt‐to‐GDP ratio. This claim is particularly relevant today because with Central Bank interest rates near zero there is no alternative to fiscal policy, and the only argument against increasing government expenditure as a way to fight unemployment is its supposed negative effect on the state of public finances.     

Shopping behaviour among gay men: issues of internalized homophobia and self‐esteem

Connections among internalized homophobia, self‐esteem and various shopping behaviours are investigated. Internalized homophobia, which affects nearly all gay men to some degree, and self‐esteem may affect shopping behaviours such as credit card debt, venue of shopping, enjoyment from shopping, amount of time spent shopping and frequency of shopping. Data from 213 gay men were collected using an Internet‐survey design. Results demonstrate that internalized homophobia has weak to moderate effects on thrift store shopping, discount store shopping and credit card debt. Although self‐esteem did not predict shopping behaviour, it was correlated with shopping enjoyment. Implications, limitations and future research are discussed.     

IMF‐Supported Programmes: Stimulating Capital to Non‐defaulting Countries

International Monetary Fund (IMF)‐supported programmes catalyse private capital to non‐defaulting countries. We find the IMF to be effective in stimulating private capital flows to middle‐income countries that participate in a Fund programme, but do not restructure their debt. IMF‐supported programmes help non‐defaulting countries to signal their willingness to reform and repay debts, thereby catalysing private capital. This signalling role appears to be more important for Fund catalysis, than the size of IMF lending.     

The ethical and policy implications of profiling ‘vulnerable’ customers

In the shadow of the global financial crisis, the issue of the marketing of credit has become an increasing concern in the past 12 months. Outstanding personal debt in the UK currently stands at £1479 billion and is rising by £1 million every 10.6 min. In Australia, there is currently $44.6 billion worth of outstanding credit card debt, and in the US, $2596 billion was owed on credit cards in 2008. At present, the banking sector utilizes sophisticated research methods to profile consumers, including those who might be considered financially vulnerable. However, the policy frameworks in most industrialized countries do not account for this form of target marketing when considering how to protect vulnerable groups. This paper is an initial attempt to examine the different methods by which profiling is conducted and the policy implications of this sophisticated form of segmentation and targeting. We argue that current consumer policies are inadequate in protecting vulnerable consumers from these marketing techniques, and recent recommendations from the Federal Reserve Bank of the United States, and the Australian Law Reform Commission to allow banks and lenders to ‘pre‐screen’ potential customers will exacerbate personal debt levels, rather than reducing them.     

Are Southern‐poor Countries’ Governments more Profligate than their Northern‐rich Counterparts? Fiscal Criteria and Impulse Responses

This study examines the health of public finances in different geographical regions by emphasising the discrepancies in North versus South and rich versus poor countries. The last decade's debt and deficit figures depicting a general fiscal consolidation across regions and income levels show signs of worsening. When the fiscal criteria are adjusted for cyclical factors, fiscal pressure appears in most countries since the end of the 1990s, but has been more persistent in poor countries, and in Asia. The dynamics of governments’ reaction to debt accumulation reveals, however, that most regions exhibit consistent anti‐debt policies to various degrees. The exception is the Latin American and Caribbean region where results suggest a lack of debt‐fighting policies. Among income categories, rich countries generate the highest primary surpluses when confronted with debt accumulation.     

The role of cross‐cultural absorptive capacity in the effectiveness of in‐country cross‐cultural training

Based on the theory of absorptive capacity, this study examines the following question. In the context of cross‐cultural training, can the amount of previously accumulated cultural knowledge affect the ability of a trainee to absorb further learning about a new culture, thus enhancing total knowledge and presumably cross‐cultural adjustment? In‐country cross‐cultural training was hypothesized to be more effective when the training components are divided and the sessions are distributed over time – resulting in increased cultural knowledge and greater cross‐cultural adjustment. Results from an experimental design suggested that in‐country cross‐cultural training can increase cultural knowledge, when distributed over time. The results also suggested that the training group had greater differences between pre‐training and post‐training scores on cross‐cultural adjustment, but the differences were not statistically different. The results, methodology and conclusions can be generalized to a variety of populations (e.g. international managers and expatriates) and organizations (e.g. multinationals). For international managers and expatriates, the results showed that in‐country cross‐cultural training, like predeparture cross‐cultural training, is also a viable intervention for knowledge acquisition.     

No Pain,No Strain: Impact of Health on the Financial Security of Older Americans

This study uses data from the 2002 and 2004 Health and Retirement Study to investigate the impact that new and existing health problems have on the financial strain of older Americans. Two‐period models are estimated for a series of financial ratio guidelines that take into account household solvency, liquidity, and investment asset accumulation. We test our models using a subjective measure of self‐reported health status and two objective measures of health that control for the severity of specific health conditions. The results show that health problems significantly increase the likelihood of financial strain for older individuals, but the effects vary by the measure of financial strain used and how health status is defined. Specifically, existing health conditions were more likely to affect solvency and investment asset accumulation than liquidity, while new health events were more likely to affect solvency. The severity of the condition did not seem to matter as much as whether the condition was chronic. These results provide insight into the future financial security of older Americans and have important implications for health policy and research.     

The “You and I” of Happiness: Investigating the Long‐Term Impact of Self‐ and Other‐Focused Happiness‐Enhancing Activities

It is commonly known in the positive psychology literature that people who want to increase their happiness ought to engage in so‐called happiness‐enhancing activities. Building on this stream of research, work that emphasizes the duality of happiness (affect vs. meaning) is introduced in order to propose a new conceptualization of happiness activities. The new conceptualization distinguishes between self‐ and other‐focused happiness activities, and argues for the importance of other‐focused activities over self‐focused ones. Results from a six‐week long study show that other‐focused happiness activities consistently outperformed self‐focused ones in terms of raising participants’ levels of happiness. Although self‐focused happiness activities also increased happiness, by showing increases over time relative to participants’ baseline level, other‐focused happiness activities consistently outperformed such increases.     

Multilateral,Regional and Bilateral Trade‐Policy Options for the United States and Japan

We have used the Michigan Model of World Production and Trade to simulate the economic effects on the United States, Japan, and other major trading countries/regions of the Doha Round of WTO multilateral trade negotiations and a variety of regional/bilateral free trade agreements (FTAs) involving the United States and Japan. We estimate that an assumed reduction of post‐Uruguay Round tariffs and other barriers on agricultural and industrial products and services by 33 per cent in the Doha Round would increase world welfare by $686.4 billion, with gains of $164.0 billion for the United States, $132.6 billion for Japan, and significant gains for all other industrialised and developing countries/regions. If there were global free trade with all post‐Uruguay Round trade barriers completely removed, world welfare would increase by $2.1 trillion, with gains of $497.0 billion (5.5 per cent of GNP) for the United States and $401.9 billion (6.2 per cent of GNP) for Japan. Regional agreements such as an APEC FTA, an ASEAN Plus 3 FTA, and a Western Hemisphere FTA would increase global and member country welfare but much less so than the Doha multilateral trade round would. Separate bilateral FTAs involving Japan with Singapore, Mexico, Chile and Korea, and the United States with Chile, Singapore and Korea would have positive, though generally small, welfare effects on the partner countries, but potentially disruptive sectoral employment shifts in some countries. There would be trade diversion and detrimental welfare effects on some non‐member countries for both the regional and bilateral FTAs analysed. The welfare gains from multilateral trade liberalisation are therefore considerably greater than the gains from preferential trading arrangements and more uniformly positive for all countries.     

External Debt,Labour Productivity Growth and Convergence: Evidence from Sub‐Saharan Africa

Sub‐Saharan Africa (SSA) has long suffered from lagging productivity and excessive levels of indebtedness. Using both parametric and non‐parametric techniques, this paper examines the impact of external debt on labour productivity growth and convergence across SSA economies over the period 1970–2010. The results indicate the presence of debt‐overhang effects, regardless of model and sample specification. Debt reduction through the Heavily Indebted Poor Countries and Multilateral Debt Relief initiatives enhanced growth but was not successful in offsetting the debt‐overhang effects. Moreover, excessive levels of external debt were responsible for divergence in output per worker over the early 1990s. Although this trend was reversed over the 2000s, reduction in debt through the debt relief initiatives seems to have been insufficient in helping heavily indebted countries in SSA catch up with the labour productivity levels of the best‐performing economies in the region.     

Debt Literacy and Debt Literacy Self‐Assessment: The Case of Poland

It is well documented that financial literacy is at best moderate around the world and that the cost of ignorance in this field may be high on both microeconomic and macroeconomic levels. We surveyed a representative sample of Poles to measure their debt literacy—a little‐studied aspect of financial literacy—and therefore obtain insight into the factors predicting it. Our study evidenced low levels of debt literacy and its overestimation by respondents in their self‐reports. We also confirmed some of the patterns found in former studies, including the gender gap and a positive relationship between the level of educational attainment and debt literacy. Finally, our examination provides compelling outcomes with regard to the segmentation of the sample on the basis of objective and subjective debt literacy scores. They show large heterogeneity of debt literacy and thus confirm the need for far‐reaching customization of debt‐oriented education.     

MACROECONOMIC ADJUSTMENT UNDER AN EXTERNAL AND FISCAL CONSTRAINT: A FIX‐PRICE/FLEX‐PRICE APPROACH

This paper presents a dual economy model of the fix‐price/flex‐price kind that explicitly allows for the existence of a government budget constraint in a fully open economy. Both the external and fiscal closures resemble very much the contemporary experience of several Latin American countries, where fiscal discipline and fix exchange rate systems have been the norm. Thus, within the public sector, it is assumed that public investment is the adjustment variable, while foreign reserves variation adjusts the external balance. Short‐run impacts of policy‐induced variables and changes in exogenous external financing are analysed. Relevant trade‐offs, especially between output and inflation, follow from an analysis in which the time perspective is rather short. However, in the medium term, some balancing forces in the economy can moderate the trade‐offs. We show among a wide range of events and policy options that this is the case of debt relief or a concerted lending strategy.