Prof. Francisco Gomes: Consumption and Portfolio Choice over the Life Cycle | Rational Reminder 262

Household finance has grown considerably as a field of study in recent years. And with the decrease in defined benefits pension plans, households are increasingly needing to take more responsibility for their own financial fates (much more so than they needed to in the past). Joining us today to discuss household finance and the growing importance of households in the economy, is Professor Francisco Gomes. Francisco is a Professor of Finance at London Business School and earned his PhD in economics at Harvard with his main areas of expertise being household finance, capital markets, asset allocation, and macroeconomics. In our expansive conversation with Francisco, we discuss the increasingly important role of households in the economy, how this has contributed to household finance becoming a more prominent field of study, and what can be done to make sure that academic findings reach, and positively impact, households. Francisco shares a detailed outline of what he’s learned from his research, covering topics like level of education, automation at work, peer effects, and culture, with explanations of how these elements can impact household financial decisions. We also learn about his passion for financial literacy, why he is such a big proponent of ensuring that everyone has access to a quality personal finance education, and the personal finance course he currently teaches at London Business School. To learn more from Francisco about the study of household finance and how to improve outcomes for households, be sure to tune in today!
Timestamps:
0:00:00 Intro
0:03:14 When talking about optimal asset allocation over the lifecycle, what exactly is being optimized
0:08:57 How optimal asset allocation changes over the lifecycle
0:13:57 How important pinpointing the exact riskiness of labor income in asset allocation decisions is
0:18:04 How households can practically use a life-cycle asset allocation model to make asset allocation decisions
0:22:27 How the empirical lifecycle asset allocations of households compare to theoretical predictions
0:28:06 How the process of optimizing asset allocation changes at retirement
0:32:15 Why Francisco thinks annuity uptake is low
0:37:23 How wealth and human capital affects stock market participation
0:39:48 The channels through which automation affect wealth accumulation
0:42:21 How education level affects the interaction between automation and wealth
0:45:46 How changes in someone’s financial situation affects their expectations about the future
0:48:06 How personal experiences affects optimism or pessimism about the future
0:51:19 Why it is important to the study of finance to understand how households make financial decisions
0:56:35 How peer effects influence household financial behavior
0:58:42 The role Francisco sees for financial advice in improving the finances of households
1:01:11 What Francisco is most excited about in his research
1:03:24 Francisco defines success in his life
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Benjamin on Twitter - / benjaminwfelix
Cameron on Twitter - / cameronpassmore
Prof. Francisco Gomes on Twitter - / franc_j_gomes
Prof. Francisco Gomes - sites.google.com/view/francis...
'Optimal Life-Cycle Investing with Flexible Labor Supply: A Welfare Analysis of Life-Cycle Funds' - www.jstor.org/stable/29730037
'Consumption and Portfolio Choice over the Life Cycle' - academic.oup.com/rfs/article-...
' Portfolio Choice Over the Life Cycle: A Survey' - papers.ssrn.com/sol3/papers.c...
'Longevity risk, retirement savings, and financial innovation' - www.sciencedirect.com/science...
'Stock Market Participation and Portfolio Shares Over the Life Cycle' - papers.ssrn.com/sol3/papers.c...
'Optimal Life-Cycle Asset Allocation: Understanding the Empirical Evidence' - www.jstor.org/stable/3694770
'Do Robots Increase Wealth Dispersion?' - academic.oup.com/rfs/advance-...
'Evidence on Expectations of Household Finances' - papers.ssrn.com/sol3/papers.c...
'Household Finance' - www.aeaweb.org/articles?id=10...

[@BrunoAlves-uy3sl]

Wow. Such an useful info! Im impressed with Prof. Francisco. Please, keep doing this amazing work you do!

[@shauna996]

I’ve worked and talked with thousands of people over the years. Almost none of them know any of this. Their retirements and lives would be so much better if they knew and acted on this kind of information. I do occasionally get through the normal disinterest in finance with a person and get them to start saving and allocating finances in a rational way. What a gift to have this free information!

[@AnhNguyen-bi6vg]

Love to see your continuous effort pays off, with increasing subscribers ❤❤❤

[@vancejoy3724]

Very interesting! I am in the trades; working as a powerline technician (lineman). I wonder what sort of risk to automation a job like this (or trades in general) might face in the future..? Either way, I appreciate this content as it reframes how I look at labour capital vs what risk profile I might take with my investment portfolio and the size of my emergency fund . Thanks!

[@freddiefreeloader1894]

I can tell you’d make a great small business owner with that thoughtfulness.

[@rationalreminder]

Anecdotally trades seem so ridiculously in demand right now. It will be interesting to see how automation impacts them.
-Ben

[@s1003yyds]

Yes, the blogger is right, I think no matter what kind of investment we make, we should consider risks. What do you think?

[@ElektrikaCo]

I think automation will increase demand and compensation for skilled trades even further. As a maintenance electrician I see first hand how increasingly complex and automated equipment requires more and more skill and time to troubleshoot and maintain. You might get more fancy tools like self driving trucks or aerial inspection drones, but in the end all of it will still require skilled people to operate because of the non-repeatable nature of our work.

[@thomas6502]

Thank you.

[@p.c.h.6721]

I wish you would make these vídeos a bit shorter, I don’t have so much free time to sit here listening, but I understand....
Great job guys

[@freedomlife3623]

You can always abuse and come back to listen. Love the long form and more detailed discussion which differentiate their show from others.

[@mattlm64]

They have a transcript if you wish to skim through and find parts most relevant to yourself.

[@p.c.h.6721]

@@mattlm64
Thanks 🙏

[@the.blue.raven7777]

Hello

[@shellyperera2010]

Most of this is just common sense! Certainly not mind blowing.

[@shauna996]

Over 95% of the people I work with (thousands), have no clue about any of this. This is not common knowledge! What an immense free gift to the public this is.

[@ElektrikaCo]

Once you learn something, you tend to think that it’s common sense/knowledge. Most people know very little about finance and economics, and even less actually apply any of it in their day-to-day lives…