Kyoung Tae Kim

Assessing Financial Security of Low Income Households in the United States

ABSTRACT The authors used three financial ratios to measure the financial security of low-income households: the liquidity, debt-to-income (DTI), and solvency ratios. The analytic sample included nonretired households with incomes no greater than three times the poverty threshold as reported by the U.S. Census Bureau. From the 2010 Survey of Consumer Finances data set, the authors found that households in the higher poverty threshold were more likely to meet the recommended guidelines for the DTI and solvency ratios. This study provides important insights for researchers and policymakers in the areas of poverty and household finance.

After the great recession : financial sophistication and housing leverage

ABSTRACT US households face various choices in saving for retirement, with one of the most common decisions related to maintaining or paying off a mortgage. Using the 2010 and 2013 Survey of Consumer Finances, this study investigates the relationship between financial sophistication and mortgage decisions among middle-age households. A Heckman two-stage selection model is employed to investigate two separate decisions: mortgage holding and loan-to-value (LTV) ratios among mortgage holders. Results indicate that financial sophistication is positively associated with carrying a mortgage and higher LTV ratios. These results imply that financially sophisticated households may be using leverage to increase asset returns.

Financial literacy and use of payday loans in the United States

ABSTRACT Using the 2012 National Financial Capability Study, this study investigated the relationship between financial literacy and payday loan use. An instrumental variable approach was employed to address a possible endogeneity issue using a newly developed instrument of financial literacy based on the community network effect. Results from linear regressions indicated that financial literacy was associated negatively with the use of payday loans, and its effect was greater with the use of the instrument.

Financial Literacy and Financial Decisions of Millennials in the United States

This study investigates the role of financial knowledge in various short-term and long-term financial behaviors among Millennials in the United States. Results from the 2015 National Financial Capability Study (NFCS) indicate that Millennials have lower levels of objective financial knowledge and similar levels of perceived financial knowledge as compared to all households. Consistent multivariate results find financial knowledge to be positively associated with performing positive short-term and long-term financial behaviors. Results are found to be robust across different measurements of financial knowledge and behavior, and the issue of the potential for reverse causality is specifically addressed. This study provides a comprehensive financial profile of Millennials with important insight for policymakers as well as financial practitioners.

Do Worker Expectations of Never Retiring Indicate a Preference or an Inability to Plan

Using the 2013 Survey of Consumer Finances, we found that 18% of full-time workers aged 35–60 years who were household heads expected never to retire. Expecting never to retire was more related to a failure to plan rather than a preference for working indefinitely. Most workers stating that they would never retire probably would have expected retirement ages younger than 67 years if they had planned for retirement. Evaluations of retirement adequacy of workers should carefully consider the meaning of a response of “never retire.” Financial advisors working with clients who state that they never expect to retire should assess whether that expectation is a preference or a reflection of the client’s failure to prepare for retirement.

Poverty Levels and Debt Indicators among Low-Income Households before and after the Great Recession.

This study analyzed the debt profile of low-income households before and after the Great Recession using the 2007, 2010, and 2013 Survey of Consumer Finances (SCF). We used Heckman selection models to investigate three debt characteristics: (a) the amount of debt, (b) debt-to-income ratio, and (c) debt delinquency. Before and after the Great Recession, results from the selection stage showed the probability of holding debt for households increased as their income level increased (moving into less severe poverty categories); results from the outcome stage indicated households in the most severe poverty category (below 100% of poverty threshold) were less likely to meet debt-to-income ratio guidelines. Following the Great Recession, these lowest income households were more likely to have higher debt and debt delinquency problems.

Changes in the Risk Tolerance of US Households During 1992-2013

This research extends the work of Yao, Hanna, and Lindamood (2004) and others in attempting to ascertain how stock market fluctuations affect the risk tolerance of households. We used the 1992 to 2013 datasets of the Survey of Consumer Finances (SCF), and found that whether respondents were willing to take some risk varied somewhat during the period, with proportions increasing in the 1990’s with the increases in stock market levels, and decreasing since 2001. In contrast, the proportion of respondents willing to take substantial or above average investment risk (“high risk tolerance”) fluctuated much more during the period in relative terms, and generally was high after a sustained period of stock market gains. The proportion of respondents with high risk tolerance was low in the 2013 SCF, but is likely to be higher in the 2016 SCF. Logistic regression analyses controlling for age, racial/ethnic status, household composition, and other characteristics had generally similar results to the descriptive patterns, so the changes do not seem related to changes in household composition.