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2020 Conference

du 18 au 20 May 2020

Proposal authors can use this tool to see where they have been placed in the agenda for a Symposium, an Oral Session, or a Featured Research Session Poster.

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A1c Focusing on Both Sides of the Balance Sheet: The Benefit of Liability Optimization

mardi 19 mai 2020 à 16:15–17:30 CDT
Room 1
Key Words

Debt Management, Retirement Financial Planning, Behavioral Finance, Financial Decision Making

Short Description

Debt has become a significant issue among US households. Based on our analysis using the 2016 Survey of Consumer Finances, average household interest payments on liabilities exceed expected returns on investment assets by more than 50%. In this study, we first explore the role of US household debt and analyze the impact of different economic, demographic, and behavioral factors on household borrowing decisions. We then separate "good" and "bad" debts depending on type and interest rates, and investigate household characteristics associated with these categories. Lastly, our "alpha-equivalent analysis" reveals substantial potential benefits associated with improving household liability management. For households in the 75th percentile ranked by debt interest rate, reducing rates by five percentiles is equivalent to a return increase of 550 basis points on their investment portfolios. Our results indicate that households with lower asset, income, and education levels could benefit most from assistance with debt optimization.

First & Corresponding Author

Zhikun Liu, Empower®
Authors in the order to be printed

Zhikun Liu, David Blanchett

Additional Authors

David Blanchett, Morningstar Investment Management
Chargement en cours …