The Household Finance Landscape in Emerging Economies

Abstract

We survey the household finance landscape in emerging economies. We first present statistics on household balance sheets from official microsurveys in countries constituting 45% of the global population: China, India, Bangladesh, the Philippines, Thailand, and South Africa. We contrast these patterns with those in data from advanced economies. We then survey the nascent literature on household finance in emerging economies and discuss areas of overlap with the better-established literature on household finance in advanced economies, as well as the large body of literature on development finance. We highlight useful directions for future research.

Household Finance

“…Interestingly, Christelis, Georgarakos, and Haliassos (2013) document that in Europe, countries with the highest homeownership rates, somewhat counterintuitively, tend to have the lowest mortgage participation rates. The picture of participation differs substantially for the sample of developing economies (accounting for over 50% of the world's population) considered by Badarinza, Balasubramaniam, and Ramadorai (2019). On average, only 60% of households in these countries hold any form of financial asset, while real estate ownership is above 75%…”

“…We provide a few broad summary statistics which are useful to set the context for this section (see also section 2.3.5). First, as Badarinza, Campbell, and Ramadorai (2016) and Badarinza, Balasubramaniam, and Ramadorai (2019) show, mortgages are of first-order importance in both advanced and emerging economies, though mortgage penetration is substantially higher on average in advanced economies-this is likely, at least in part, as Badarinza, Balasubramaniam, and Ramadorai (2019) highlight, a result of the difficulties of collateralization of houses in emerging economies arising from the inadequacies of well developed systems of land title and registration. Second, internationally, mortgage takeup varies considerably over the lifecycle (Ramadorai and Household Finance Committee, 2017).…”

Discerning Good from Bad Credit Booms

“…Employment growth in construction remains significant in predicting bad booms even after controlling for the duration of the boom, initial credit to GDP, and the growth rate of credit to GDP during the boom. A 1 percentage point increase in value-added or employment growth in the construction sector raises the probability of a bad boom by access to finance, see, for instance, Badarinza, Balasubramaniam, andRamadorai (2016, 2018). (approximately) and 5 percentage points, respectively, after controlling for the duration of the boom or its size.…”

How Cognitive Ability and Financial Literacy Shape the Demand for Financial Advice at Older Ages

“…A second reason that older people may seek financial advice is that many of them are financially illiterate, leading them to undersave and underinvest (Lusardi and Mitchell, 2014;Lusardi, Michaud, and Mitchell, 2017;Clark, Lusardi, and Mitchell, 2015;Choi, Laibson, and Madrian, 2011;Choi, 2015). Many older adults make mistakes when managing their finances in both developed and developing countries (e.g., Badarinza, Campbell, and Ramadorai, 2016;Badarinza, Balasubramaniam, and Ramadorai, 2019). Somewhat surprisingly, and despite objective confirmation of an age-linked decline in financial capability at older ages, the evidence shows that older persons' self-confidence in their own financial ability rises with age, peaking at about age 88.…”