HF 1 Flashcards
What is a utility function?
A way to mathematically represent preferences over bundles of goods
Normative household, what is it?
How household should make financial decisions
Positive household finance, what is it?
How households actually make decisions
What is deferring consumption?
Saving, investing and lending
What is for most people the most important element of their personal balance sheet?
Human capital
What is securitisation?
Owner of loans is too far detached from the lender, therefore information gets lost
Reasons why people are under indebted
Market power-
Regulatory failure-
Asymetric info-
What is analogy?
Firms that issue equity while paying dividends
What is debt consolidation
Taking a loan to payoff another loan
Why do people use a payday loan?
They have no other options
What is loan to value?
The amount of debt you can get as a percentage of you home price
What are the two main tax advantages of buying a house?
No tax on imputed rent
Tax deductibility on mortgage interest
What are benefits of renting?
No transaction costs
Renters can get huurtoeslag
You can live in a subsidised house
What are psychological aspects of buying?
Few people can save money regularly
Preference for security
Only way to do a high leveraged and high risk investment
What is background risk?
The risk for lenders that the borrowers do not pay the loan
