Episode 262: Francisco Gomes: Consumption and Portfolio Choice over the Life Cycle

<p>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!</p> <p> </p> <p><strong>Key Points From This Episode:</strong></p> <p> </p> <ul> <li>What it means to maximize your wealth over your lifetime and the crucial ratio determining optimal asset allocation. <strong>(0:02:53)</strong></li> <li>How optimal asset allocation changes over your life cycle and how our human capital diminishes with age. <strong>(0:08:08)</strong></li> <li>Building a buffer stock of wealth and the evidence that people become more comfortable with risk as they