Friday, January 29, 2010

Why isn't household finance more academically prominent?

Consumer finance is the study of how institutions provide goods and services to satisfy the financial functions of households, how consumers make financial decisions, and how government action affects the provision of financial services. ...

Corporations are central to financial economics. Surely, businesses produce goods and services, and provide employment. Yet in sheer size, the household sector dominates the corporate sector. ...

Recent economic events have demonstrated the importance of the consumer sector to the economy. ... Some finance academics argue that the field of finance is defined by whether the activity affects asset prices. Even by this narrow definition, consumer finance deserves a prominent place in the field of financial economics and in business schools. Curiously, it has a remarkably small footprint in both, and as [John] Campbell notes, suffers from lack of status. Why? ...

It may be that our current state of research and teaching reflects a century-old split that left consumer and business topics separated by gender and geography. Elite urban universities emphasized businesses and prepared men to lead them; rural land-grant universities studied households and prepared women to lead them. In essence, the study of consumers’ financial needs was subsumed under the field of home economics or consumer science, which was, and still is, divorced from mainstream economics and business. ...

Nearly a century later, this schism still largely persists. What we call consumer finance is most often studied in consumer science programs, not in business schools or economics departments. ...

Scholars from these two worlds rarely interact. Their conferences are distinct, and their journals are quite separate. Furthermore, to this day, the ratio of men to women faculty members in these respective programs, as measured by their professional associations, continues to reflect their history. Male faculty members comprise between 83% and 89% of finance departments at the top 20 business schools, as measured by membership in the AFA. In consumer science programs, women dominate, comprising 62% of faculty in the top 10 most active departments, and 84% of the American Association of Family and Consumer Science’s Higher Education Unit. Land-grant universities continue to be a dominant force in this field.
--Peter Tufano, Annual Review of Financial Economics, on why all business schools teach asset pricing and corporate finance, but few teach household finance

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