Syllabus

Course Meeting Times

Lectures: 2 sessions / week, 1.5 hours / session

Recitations: 1 session / week, 1.5 hours / session

This course meets during the first half of the term.

Prerequisites

15.401 Managerial Finance, 15.414 Financial Management, or 15.415 Finance Theory.

Course Overview

This course on consumer finance and financial products is a rapid tour of some of the largest existing challenges and most interesting recent innovations in financial markets. It also will illustrate broad lessons about competing in markets with adverse selection and moral hazard, and in markets where consumers have limited knowledge and reputation is critical. Specific examples will be drawn from retirement saving products, credit cards, peer to peer lending, cryptocurrencies, and financial advising.

We will cover consumer financial products related to credit, investment, and transactions. We start with how people make financial decisions, including both rational and behavioral models, and then turn to how financial products and markets are designed to serve the needs of consumers and/or to make profits. The course also touches on the funding of lending to households and the design and risks of financial products backed by mortgages, credit cards, or student loans, as well as the rapidly-evolving institutions and regulatory structure affecting the financial industry serving households. The course will be a fast and exciting tour.

Why study consumer finance?

• Because households in the U.S. hold $75 trillion in assets and $15 trillion in liabilities (in 2016), and consumer credit markets are much larger than the corporate debt markets
• Learn about how one should make financial decisions, as well as about the biases and behavioral economics of how people often do make financial decisions
• Consumer financial products were the source of the 2007-2009 major U.S. financial crisis
• Consumer financial markets are booming with innovations and fintech startups from Bitcoin and new payments technologies, to peer-to-peer lending like Lending Club, to financial advising startups like Betterment, to innovative products to solve the problems of the aging population of the developed world, to insurance and financial products to facilitate growth in developing markets
• The institutions and regulation of personal finance are evolving as the Consumer Protection Financial Bureau rethinks regulation of consumer financial markets and as regulators reform origination and trading mechanisms for assets backed by mortgages, student loans, and credit cards

We will make use of case studies, readings from financial institutions, think tanks, textbooks, financial firms, and government agencies. Lots of readings are optional.

Requirements and Grading

Course requirements include regular attendance and participation in class which requires having read the assigned articles prior to coming to class and discussing them. The assignments include group-based and individual written projects and case analyses. Cases are listed in the Readings section.

Recitations

Weekly recitations present material to prepare for problem sets and go over past problem sets.