Bachelor 2020/2021

Sociology of Financial Behavior

Type: Elective course (HSE University and University of London Double Degree Programme in Economics)

Area of studies: Economics

Delivered by: International College of Economics and Finance

Where: International College of Economics and Finance

When: 3 year, 1, 2 module

Mode of studies: offline

Instructors: Olga E. Kuzina

Language: English

ECTS credits: 4

Contact hours: 64

Course Syllabus

Abstract

The «Sociology of consumer finance» Bachelor Program is developed according to the standard educational requirements of the Federal State Autonomous Educational Institution of Higher Education «National Research University «Higher School of Economics» (HSE). Students are supposed to be familiar with Contemporary Sociology in a Global Age, Introduction to Probability Theory and Statistics and Economics.

Learning Objectives

• The main goal of this unit is to develop a critical, reflexive, and interdisciplinary approach to key problems in contemporary research on financial behaviour of households.

Expected Learning Outcomes

• to understand and interpret macro and micro statistics on household incomes and savings
• to know theoretical models of households savings behaviour which are developed in economic theory
• to know theoretical models of households savings behaviour which are developed in economic psychology
• to know theoretical models of households portfolio behaviour which are developed in economic theory
• to know theoretical models of households savings behaviour which are developed in behavioural economics
• to know theoretical models of households financial behaviour which are developed in economic sociology
• to know theoretical approaches and empirical research on the control and allocation of money within households, systems of money management in the families
• to understand the notion of trust, conceptual and operational definitions, the role of state regulation on financial markets in creating trust to financial institutions
• to know conceptual and operational definitions of financial inclusion/exclusion and the results of cross-country variation in household access to financial services
• to know conceptual and operational definitions of financial literacy and financial capability, as well as the results of international comparisons of financial literacy of individuals.
• to know retirement-income systems across the world, research on pension wealth and household savings, and studies on retirement adequacy.
• to know the causes and long-run macroeconomic implications of the rise in household indebtedness.

Course Contents

• The main concepts and definitions of financial behaviour of households. Conceptual and operational defenitions
  Financial behaviour of households as a research subject in different social disciplines (economic theory, economic psychology, economic sociology). Who takes financial decisions: household, family, or individual? Household resources and household incomes. A theoretical definition of income. Hicks’ definition of income. How to operationalize this concept into empirical research. Household income and expenditures statistics. The concept of household savings: flows of savings and stock of savings. Saving rate. Time period of measurements. Positive and negative savings. Macro and micro statistics of savings. Savings statistics in Russia. International comparison of savings rates across countries and their dynamics. Forms of savings. Durables and savings. Savings and investments. Savings and debts. Problems of overestimation of savings in official statistics on incomes and savings in Russia. Survey questions on incomes, wealth, consumption, savings in consumer research. Problems of wording. How to avoid sensitive questions. National surveys of incomes and expenditures. Russian Longitudinal Monitoring Survey – questionnaire and data set. Research questions which may be answered by using this data set.
• Economic models of personal savings
  Average and marginal propensity to consume/ to save. Consumption/Savings function. Theory of J.M.Keynes and early empirical work (cross section data and time series data). The intertemporal choice and saving (I.Fisher). Neo-classical models of savings behaviour of households: Permanent Income Hypothesis (M.Friedman) and Life-Cycle Hypothesis (F.Modigliani). Empirical puzzles (stylised facts) of household savings behaviour. International comparisons of household saving. The puzzle of the U-shaped savings-age profile in Russia. Introduction of the assumption of uncertainty of future incomes in the models of household saving behavior. Precautionary savings. Liquidity constraints. The Chinese saving puzzle
• Economic models of portfolio choice
  Positive and normative approaches to research on household finance. Problems of measurement of wealth. The existing data sets with the detailed quantitative information on household and individual asset holdings: Surveys of Consumer Finance, government tax records, the Health and Retirement Survey (US), etc. Household participation in financial markets and their asset allocation decisions, diversification of risky asset holdings. Academic research on mortgages, barriers to innovation in retail financial markets. Housing as an asset. Household lifecycle portfolio allocations.
• Psychological approach to studying savings behaviour of household
  Psychological factors in modeling savings behaviour of households. Psychological critique of economic approach (Tard). Psychological economics of G.Katona. Contribution of psychological data to economic analysis. Subjective expectations as intermediates of objective economic factors. Model of savings behaviour of G.Katona. Contractual, discretional and residual savings. Index of consumer sentiments: methodology and trends. Index of consumer sentiment.
• Behavioral economics of personal finance
  Bounded rationality. Heuristics and biases. Prospect theory. Framing effect. Behavioral economics of savings, behavioral life-cycle model (Shefrin  Thaler). Empirical psychological experiments. Nudging: examples of this type of regulation.
• Social embeddednes of financial behaviour of individuals and households
  Sociological approach to studying economic behaviour. Rationality as motivated and guided by shared beliefs, norms and institutions. Elements of sociological approach in economic theory (Duesenberry, social and cultural effects on savings behavior in economic research). 4 Sociological studies of financial behaviour of households: the social meaning of money (Zelizer), the embededdness of economic behaviour in social structure (Zelizer).
• Family budget management
  Family finances: research on the control and allocation of money within households, systems of money management in the families. Financial decisions in the household.
• Trust to financial institutions
  The notion of trust. Trust in financial institutions:conceptual and operational definitions. Social capital. The role of state regulation on financial markets in creating trust to financial institutions. The state deposit insurance system. Information and trust as social aspects of credit. Long-term investments in life insurance and pension funds.
• Access to financial services, financial inclusion, saving motives
  Conceptual and operational definitions of financial inclusion/exclusion. Cross-country variation in household access to financial services. Popultion vulnerable to financial exclusion. Factors of financial exclusion. Policies and practices aimed at reducing financial exclusion. Financial and social exclusion. Motives and attitudes to saving. Saving motives in relation to household saving habits. Saving motives across income groups.
• Financial literacy and financial capability of individuals
  The conceptual and operational definitions of financial literacy and financial capability. International comparisons of financial literacy of individuals. Financial literacy among the young. Financial literacy and retirement planning. Determinants of financial literacy and financial capability. The effects of perceived and actual financial literacy on financial behaviour
• Household retirement strategies
  Retirement-Income Systems across the world. Pension wealth and household savings. Retirement confidence survey (US). Sources of retirement income. Empirical studies on retirement adequacy. Participation in pension saving among employees (UK). Determinants of retirement savings. Time horizon of financial decisions.
• The sociology of consumer credit
  Causes and long-run macroeconomic implications of the rise in household indebtedness. Methods for assessing the credit risk when lending to consumers. Credit card delinquencies and personal bankruptcy rates (US). Restricting access to expensive credit for preventing overborrowing: harming, not helping, consumers on average. The psychological cost of credit. Relationship between financial literacy and consumer credit portfolios. Information sharing in credit markets: the role of credit bureaus. Credit unions vs bank credits. Social acceptability of money-lenders, Islamic banking.

Assessment Elements

• Test
• Presentation
  One per semester
• Class activity
  Every class
• Exam

Interim Assessment

• Interim assessment (2 module)
  0.1 * Class activity + 0.4 * Exam + 0.25 * Presentation + 0.25 * Test

Bibliography

Recommended Core Bibliography

• Deaton, A. (1991). Saving and Liquidity Constraints. Econometrica, (5), 1221. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.ecm.emetrp.v59y1991i5p1221.48
• Deaton, A. (1992). Understanding Consumption. Oxford University Press. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.b.oxp.obooks.9780198288244
• Denizer, C., Wolf, H. C., & Ying, Y. (2000). Household Savings in Transition Economies. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.45A1AEDC
• Mental budgeting and the management of household finance. (2011). Journal of Economic Psychology, 32(4), 546–555. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsnar&AN=edsnar.oai.library.wur.nl.wurpubs.419402
• Paul R. Gregory, Manouchehr Mokhtari, & Wolfram Schrettl. (1999). Do The Russians Really Save That Much? - Alternate Estimates From The Russian Longitudinal Monitoring Survey. The Review of Economics and Statistics, (4), 694. https://doi.org/10.1162/003465399558418
• Shefrin, H. M., & Thaler, R. H. (1988). The Behavioral Life-Cycle Hypothesis. Economic Inquiry, (4), 609. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.oup.ecinqu.v26y1988i4p609.43
• Shorrocks, A. F. (1975). The Age-Wealth Relationship: A Cross-Section and Cohort Analysis. The Review of Economics and Statistics, (2), 155. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.tpr.restat.v57y1975i2p155.63
• Skoufias, E. (2004). Consumption smoothing during the economic transition in Bulgaria. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.6AA15472
• Souleles, N. S. (2002). Consumer response to the Reagan tax cuts. Journal of Public Economics, (1), 99. Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsrep&AN=edsrep.a.eee.pubeco.v85y2002i1p99.120

Recommended Additional Bibliography

• Richard H. Thaler. (2018). From Cashews to Nudges: The Evolution of Behavioral Economics. American Economic Review, (6), 1265. https://doi.org/10.1257/aer.108.6.1265
• Зелизер, В. (2010). Human Values and the Market: The Case of Life Insurance and Death in 19th-Century America (translated by E. Berdysheva) ; Человеческие ценности и рынок: страхование жизни и смерть в Америке XIX века (перевод Е. С. Бердышевой). Retrieved from http://search.ebscohost.com/login.aspx?direct=true&site=eds-live&db=edsbas&AN=edsbas.8D1A9859