Household finance is a big topic. There is much to learn. There will be a lot you don’t know after studying the topic for years. In fact, there’s a lot about household finance that no one knows for sure.
When getting started with a thesis or empirical paper on the topic, it is a smart move to narrow your focus. Focus on one facet of household finance, and build out from there in subsequent projects.
Focus on What?
I mean “focus” in three ways. Focus on:
- Playing the role of clarifying our collective discussion by generating and interpreting empirics. What distinguishes our program, and your training with us, is a philosophical dedication to the primacy of probing and verifying factual propositions. We do not strongly emphasize philosophy or theory or politics. In any discussion that you confront in your online research or literature review, remember that your strength is to be the one who comes in with data and helps the group establish which assumed facts are likely true or false.
- A particular facet of households’ finances. Choose some facet of income, expenditures, assets, and debts. See below for more.
- A particular group. I recommend waiting until you see some empirics before making that choice. If, for example, you develop a whole study to explain why college grads spend more on books, and then you find that they don’t spend more on books, then it’s going to result in lost time and possibly a late thesis.
Which Facet of Household Finances?
For your thesis, I recommend that you focus on a particular facet of households’ income, expenditures, savings, assets, debt, or wealth. To learn more about these categories, read the first few chapters of my 2017 book (free to download here).
Incomes are concerned with money flowing into a household. Just about any survey tries to capture some kind of income measure, but a household finance specialist would dive into the weeds of how people earn money. Households receive income as a result of work wages, transfers from family members or friends, government payments, investment returns, and much else.
Expenditures concern where households expend money. Note that expending (spending) money is not the same as investing. For U.S. households, the Consumer Expenditure Survey is the best gold standard fine-grained data set. It parses household spending into a wide range of categories — from food to apparel to shelter to entertainment to healthcare and much else, and drilled down to narrow product categories.
Savings represent the unspent portion of a household’s income. It is income less savings. These savings are channeled into asset categories in discussions of wealth (below). The Survey of Consumer Finances offers a view of how Americans save their money.
Assets are property that can be exchanged for money or used to make money. This includes houses, financial investments, vehicles, retirement savings, real estate investments, intellectual property rights, and other property. Focus on the Survey of Consumer Finances.
Debt is money that is owed to others. Common debt vehicles include credit cards, student loans, medical loans, installment purchase loans, car loans, and mortgages. Focus on Survey of Consumer Finances
Net Worth / Wealth
Net worth is assets less debt. It is the value of a household’s owned property were its debts to be instantaneously paid off through asset liquidation. Focus on Survey of Consumer Finances
Pick a Focus
I recommend focusing on one of the above topics. You decide how narrow or broad. The Consumer Expenditure Survey will allow you to go as narrow as figuring out how much money people spend on toothpaste, or who spends the most on it. You can go as broad as asking how much households typically spend on all their healthcare in a year.
Get some ideas, and then return to your professor and colleagues to discuss next steps.