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New research on personal finance from Harvard Business School faculty on issues including how to choose stocks, long-term retirement planning, and increasing financial literacy.
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Forgiving Medical Debt Won't Make Everyone Happier

by Rachel Layne

Medical debt not only hurts credit access, it can also harm one's mental health. But a study by Raymond Kluender finds that forgiving people's bills—even $170 million of debt—doesn't necessarily reduce stress, financial or otherwise.

What Your Non-Binary Employees Need to Do Their Best Work

by Michael Blanding

How can you break down gender boundaries and support the non-binary people on your team better? A study by Katherine Coffman reveals the motivations and aspirations of non-binary employees, highlighting the need for greater inclusion to unlock the full potential of a diverse workforce.

Buy Now, Pay Later: How Retail's Hot Feature Hurts Low-Income Shoppers

by Rachel Layne

More consumers may opt to "buy now, pay later" this holiday season, but what happens if they can't make that last payment? Research by Marco Di Maggio and Emily Williams highlights the risks of these financing services, especially for lower-income shoppers.

What If Closing the Wage Gap Means Everyone Earns Less?

by Avery Forman

Companies are under pressure to share more data about employee salaries, but research by Zoe Cullen reveals how pay transparency doesn't always help workers. Open for comment; 0 Comments.

'Repayment-by-Purchase' Helps Consumers to Reduce Credit Card Debt

by Grant E. Donnelly, Cait Lamberton, Stephen Bush, Zoe Chance, and Michael I. Norton

Many consumers fail to pay off credit card debt each month and suffer financial consequences. Repayment-by-purchase, allocating payment toward specific purchases on a credit card bill, helps consumers gain a sense of progress and control over credit card debt.

Taking on the Taboos That Keep Women Out of India's Workforce

by Julia Hanna

Giving women in rural India more control over household finances reduces the social stigma of working, says research by Natalia Rigol. Open for comment; 0 Comments.

Gender Bias Complaints against Apple Card Signal a Dark Side to Fintech

by Karen G. Mills

The possibility that Apple Card applicants were subject to gender bias opens a new frontier for the financial services sector in which regulators are largely absent, argues Karen Mills. Open for comment; 0 Comments.

New Year, New Habits

by Sean Silverthorne

You are resolved to turn over a new leaf in 2019. Maybe become a better boss or crank up the productivity. What are the best ways to put these good intentions into practice? Open for comment; 0 Comments.

Sophisticated Investors May Be Harming Fintech Lending Platforms

by Dina Gerdeman

A study by Boris Vallee and Yao Zeng says savvy investors on peer-to-peer lending platforms are upsetting a delicate balance that makes those systems work for borrowers. Open for comment; 0 Comments.

Can Financial Innovation Solve Household Reluctance to Take Risk?

by Laurent Calvet, Claire Celerier, Paolo Sodini, and Boris Vallée

Structured products are an innovative class of retail financial products with option-like features. This paper provides empirical evidence suggesting that innovative financial products like these can help alleviate loss aversion and thus the low participation of households in risky asset markets.

The State of Small Business Lending: Innovation and Technology and the Implications for Regulation

by Karen Gordon Mills and Brayden McCarthy

New online fintech competitors have entered the small business lending space, filling a gap in small-dollar loans. More than 70 percent of small businesses seek loans in amounts under $250,000 and more than 60 percent want loans under $100,000. Gaps in regulation of the alternative small business lending market create issues of oversight and concerns about predatory lending. The paper first describes the current market for small business lending, including the new disruptors, and presents strategic alternatives for existing banks to partner with fintech entrants and compete in the new environment. The authors then describe the current regulatory environment with its large number of agencies, each with overlapping authority and mandates, and provide a set of recommendations for regulatory activity that will protect borrowers and investors in this space. These recommendations address concerns about systemic risk while trying to avoid dampening innovation that is filling the gap in small business access to credit.

Why Millennials Flock to Fintech for Personal Investing

by Michael Blanding

New tech-heavy financial firms are helping millennials invest, but with a twist. They are swapping out investment advisers for financial robots, and passing along the savings. Luis Viceira explains the rise of "fintech" in a new case study.

Use Personal Experience to Pick Winning Stocks

by Michael Blanding

In their course Stock Pitching, Lauren Cohen and Christopher Malloy teach students everything from how to pick stocks using their own insights to pitching them to investment colleagues. Open for comment; 0 Comments.

Managing the Family Business: Preparing to Sell

by Jonathan Pellegrin

Most families are loath to sell the legacy business, but there are good reasons to do so, says John A. Davis. The key is making the right family preparations and proper wealth planning. Open for comment; 0 Comments.

New Treasury Rules Help Long-Retirement Planning

by Robert Pozen

As life expectancy expands, seniors face a new threat: outliving their retirement savings. Robert Pozen says new Treasury rules will encourage purchase of "longevity annuities" that provide income into the 80s and 90s. Closed for comment; 0 Comments.

X-CAPM: An Extrapolative Capital Asset Pricing Model

by Nicholas Barberis, Robin Greenwood, Lawrence Jin & Andrei Shleifer

Many investors assume that stock prices will continue rising after they have previously risen, and will continue falling after they have previous fallen. This evidence, however, does not mesh with the predictions of many of the models used to account for other facts about aggregate stock market prices. Indeed, in most traditional models, expected returns are low when stock prices are high: in these models, stock prices are high when investors are less risk averse or perceive less risk. In this paper, the authors present a new model of aggregate stock market prices which attempts to both incorporate expectations held by a significant subset of investors, and address the evidence that other models have sought to explain. The authors' model captures many features of actual returns and prices. Importantly, however, it is also consistent with survey evidence on investor expectations. This suggests that the survey evidence is consistent with the facts about prices and returns and may be the key to understanding them. Key concepts include: The model in this study can reconcile evidence on expectations with the evidence on volatility and predictability that has animated recent work in this area. A new model like this one is needed. Traditional models of financial markets have been able to address pieces of the existing evidence, but not the data on investor expectations. The same holds true for preference-based behavioral finance models as well as for the first generation belief-based behavioral models. Closed for comment; 0 Comments.

Want People to Save More? Send a Text

by Kim Girard

What's the most effective way to encourage people to save their money? The answer lies in a combination of peer pressure and text messages, according to new research by Assistant Professor Dina D. Pomeranz. Open for comment; 0 Comments.

A Brief Postwar History of US Consumer Finance

by Andrea Ryan, Gunnar Trumbull & Peter Tufano

The growth of the consumer finance sector after World War II provided a bevy of new financial options for Americans. These options led to a "do-it-yourself" approach to consumer finance, and an increase in household risk taking. In this paper, Harvard Business School professors Gunnar Trumbull and Peter Tufano, along with former HBS research associate Andrea Ryan, discuss the major themes that dominated the expansive postwar sector, including some of the factors that set the stage for the recent subprime mortgage crisis. Key concepts include: The authors identify four major consumer finance trends from the past 65 years: an increase in the number of available financial options including innovations; greater access to those options for more Americans; a trend toward a do-it-yourself approach in consumer financial services; and a resultant increase in household risk taking. The type of debt households carry has changed dramatically over the past several decades. The share of household financial liabilities represented by mortgages increased from 59 percent in 1950 to 73 percent in 2008, while the share represented by consumer debt fell from 31 percent to 18 percent. Closed for comment; 0 Comments.

Does Shareholder Proxy Access Improve Firm Value? Evidence from the Business Roundtable Challenge

by Bo Becker, Daniel B. Bergstresser & Guhan Subramanian

In August 2010, the Security and Exchange Commission announced a highly anticipated rule that would make it easier for investors to nominate new board members and get rid of existing ones. It allowed shareholders to have their board candidates included in the company's proxy materials--if those shareholders had owned at least 3 percent of the firm's shares for at least the prior three years. On October 4, the SEC unexpectedly and indefinitely postponed the implementation of that rule, pending the outcome of a lawsuit aimed at overturning it. This paper gauges the significance of the proxy access rule by measuring whether certain firms gained or lost market value on news of the delay. Research was conducted by Harvard Business School professors Bo Becker, Daniel Bergstresser, and Guhan Subramanian. Key concepts include: Firms that would have been most affected by the proxy access rule, based on institutional ownership, lost value on October 4, 2010, following the news of the rule's delay. This suggests that financial markets placed positive value on shareholders' access to the board. The loss in value was greatest at firms that had large positions held by activist investors. The paper's findings may help prove that the SEC has met the federal rule mandating that all proposed rules "will promote efficiency, competition, and capital formation." Closed for comment; 0 Comments.

Can a Continuously-Liquidating Tontine (or Mutual Inheritance Fund) Succeed where Immediate Annuities Have Floundered?

by Julio J. Rotemberg

The changeover from defined benefit to defined contributions retirement plans in the United States has created a vast group of individuals that faces (or will face) the difficult problem of using a lump sum of assets to provide consumption for a relatively long but uncertain number of years. Up to this point, however, consumers appear not to have embraced annuitization. HBS professor Julio J. Rotemberg suggests an alternative instrument that, like immediate annuities, provides longevity insurance and postpones income until old age. In the proposed Mutual Inheritance Fund (MIF), a pool is formed by having individuals of a particular age buy shares in a mutual fund. The income from the underlying assets in the mutual fund is reinvested in the fund so that the value of the shares in an individual's name (and possibly also the number of these shares) grows over time. The basic idea behind the MIF is that the shares of pool members who die are liquidated, and the proceeds are then distributed in cash to the remaining members in proportion to the number of mutual fund shares that are currently in their name. Key concepts include: The essence of the MIF is that people within a pool are bequeathing benefits to each other. The commonality of purpose among the members of the pool, inherent in the MIF, fits with the "mutual insurance" idea with which a great deal of insurance was started. The MIF might be more successful when the members of a pool have some reason to feel altruism toward each other (perhaps because they worked for the same organization). This altruism may be able to counteract an aspect of annuities that potential contributors customers dislike, namely, that they "get nothing" after they die. The MIF suggests an implicit concern for direct descendants. While annuities are sometimes seen as robbing children of their inheritance, the strong tilt of the MIF toward old age leads to a lottery-like component where heirs have a good chance to inherit some of the tontine's proceeds if a contributor policyholder survives until old age. Closed for comment; 0 Comments.