Welcome to the Academy of Financial Service’s 2019 Annual Meeting being held in Minneapolis, Minnesota in conjunction with FPA’s Annual Conference 2019. This is the full agenda for AFS. For details on FPA items, visit their Full Schedule. Please report any errors to support@academyfinancial.org.
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Wednesday, October 16 • 10:45am - 11:45am
E1a Focusing on Both Sides of the Balance Sheet: The Benefit of Liability Optimization

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Debt has become an increasingly significant issue among American families. Based on an analysis using the 2016 Survey of Consumer Finances (SCF), we estimate average household debt-interest payments exceed the expected returns on financial assets by more than 50%. In this study, we analyze the different economic, demographic and behavioral factors that are associated with household borrowing and leverage ratios. Then, we investigate whether the attributes related to different debt categories are similar by separating the “good” and “bad” debts. After checking the prevalence of high-interest debts, we perform “alpha-equivalent analysis” (compare debt interest savings with investment income) to calculate the potential benefits of liability optimizations. The results indicate that households with lower assets, income, and education levels need the most assistance and could significantly benefit from debt management. Families with myopic planning horizons are more likely to carry a higher amount of “bad” debts, such as credit card balances.

Author(s): Zhikun Liu, David Blanchett

avatar for Zhikun Liu

Zhikun Liu

Director of Research, Empower Retirement®

Wednesday October 16, 2019 10:45am - 11:45am CDT
201 A

Attendees (1)