Women Are Better Than Men,

photo by Matt Neale

Greeks vs Amazons, Mausoleum of Halicarnassus, British Museum

at least at paying their mortgages. This is according to an Urban Institute research report that found that

It’s a fact: women on average pay more for mortgages. We are not the first people to have noticed this; a small number of other studies have also pointed it out (e.g., Cheng, Lin, and Liu 2011). One possible explanation is that women, particularly minority women, experience higher rates of subprime lending than their male peers (Fishbein and Woodall 2006; Phillips 2012; Wyly and Ponder 2011). Another explanation is that women tend to have weaker credit profiles (Van Rensselaer et al. 2013). We find that both these explanations are true and largely account for the higher rates.

Looking at loan performance for the first time by gender, however, we find that these weaker credit profiles do not translate neatly into weaker performance. In fact, when credit characteristics are held constant, women actually perform better than men. Nonetheless, since pricing is tied to credit characteristics not performance, women actually pay more relative to their actual risk than do men. Ironically, despite their better performance, women are more likely to be denied a mortgage than men. Given that more than one-third of female only borrowers are minorities and almost half of them live in low-income communities, we need to develop more robust and accurate measures of risk to ensure that we aren’t denying mortgages to women who are fully able to make good on their payments. (1)

This second paragraph undercuts the catchy title of the report, Women Are Better than Men at Paying Their Mortgage, because it is only true when comparing single women to single men and when credit characteristics are held constant.

The report confines its analysis to sole female and sole male borrowers, excluding two-borrower households. This limitation is compounded by the fact that the credit characteristics of men and women are not the same (as men have better credit characteristics as a group).  As a result of these limitations, I think the title of the report goes too far. The authors also acknowledge that the stakes are not that high because the “inequality does not translate into a significant amount that single women overpay for their mortgages: less than $150 per female-only borrower per loan.” (15)

That point aside, the report does raise an important issue about whether credit characteristics metrics are biased against women: “the dimensions we rely on to assess credit risk today do not adequately capture all the differences. This omission has real consequences.” (15) This is certainly true, but lenders will have to carefully navigate fair lending laws as they seek to capture all of those differences.

Mommy, I’m Home!

cartoon by Mell Lazarus

The Pew Research Center has released For First Time in Modern Era, Living with Parents Edges out Other Living Arrangements for 18- to 34-Year-Olds (link for complete report on right side of page). This report adds to the growing literature on changes in household formation (see here, for instance) that have taken hold in large part since the financial crisis. There are lots of reasons to think that the way we live now is different from how we lived one generation, two generations, three generations ago.

The report opens,

Broad demographic shifts in marital status, educational attainment and employment have transformed the way young adults in the U.S. are living, and a new Pew Research Center analysis of census data highlights the implications of these changes for the most basic element of their lives – where they call home. In 2014, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household.

This turn of events is fueled primarily by the dramatic drop in the share of young Americans who are choosing to settle down romantically before age 35. Dating back to 1880, the most common living arrangement among young adults has been living with a romantic partner, whether a spouse or a significant other. This type of arrangement peaked around 1960, when 62% of the nation’s 18- to 34-year-olds were living with a spouse or partner in their own household, and only one-in-five were living with their parents. (4, footnotes omitted)

The report found that education, race and ethnicity was linked to young adult living arrangements. Less educated young adults were more likely to live with a parent as were black and Hispanic young adults. Some of the other key findings include,

  • The growing tendency of young adults to live with parents predates the Great Recession. In 1960, 20% of 18- to 34-year-olds lived with mom and/or dad. In 2007, before the recession, 28% lived in their parental home.
  • In 2014, 40% of 18- to 34-year-olds who had not completed high school lived with parent(s), the highest rate observed since the 1940 Census when information on educational attainment was first collected.
  • Young adults in states in the South Atlantic, West South Central and Pacific United States have recently experienced the highest rates on record of living with parent(s).
  • With few exceptions, since 1880 young men across all races and ethnicities have been more likely than young women to live in the home of their parent(s).
  • The changing demographic characteristics of young adults—age, racial and ethnic diversity, rising college enrollment—explain little of the increase in living with parent(s) (8-9)

It seems like unemployment and underemployment; student debt; and postponement or retreat from the institution of marriage all play a role in delaying young adult household formation.

My own idiosyncratic takeaway from the report is that, boy, the way we live now sure is different from how earlier generations lived (look at the graph on page 4 to see what I mean). Moreover, there is no reason to think that one way is more “natural” or better than the other. That being said, it sure is worth figuring out what we are doing now in order to craft policies to properly respond to it.

All The Single Ladies . . . Buy Houses

house-insurance-419058_1920

Realtor.com quote me in More Single Women Hunt for Homes, Not Husbands. It reads, in part,

Alayna Tagariello Francis had always assumed she’d marry first, then buy a home. But when she found herself footloose, free, and definably single in her early 30s, she decided to make a clean break from tradition: She started home shopping for one.

“After dating for a long time in New York City, I really didn’t know if I was going to meet anyone,” she says. “I didn’t want to keep throwing away money on rent or fail to have an investment because I was waiting to get married.”

So in 2006, Francis bought a one-bedroom in Manhattan for $400,000—and was surprised by how good it felt to accomplish this milestone without help.

“To buy a home without a husband or boyfriend wasn’t my plan,” she says, “but it gave me an immense sense of pride.”

It’s no secret that both men and women are tying the knot later in life. A generation ago, statistics from the Census Bureau showed that men and women rushed to the altar in their early 20s; now, the median age for a first-time marriage has crept into the late 20s—and that’s if they marry at all.

The surprise is that even though today’s women still make 21% less than men, more single women than men are now choosing to charge ahead and invest in a home of their own. It’s changing the face of homeownership in America.

And while that decision to buy can help build wealth and ensure financial stability, plenty of women are finding the road from renter to owner is filled with unforeseen obstacles—and plenty of soul-searching.

*     *     *

Why women shouldn’t wait

But then again, few of us have fully operational Ouija boards we can pull out of storage to pinpoint exactly when our ideal significant other will arrive on the scene. So putting house hunting on pause is something fewer women are willing to do.

“Women today don’t sit around and wait for Prince Charming,” says Wendy Flynn, a Realtor® in College Station, TX, who has helped numerous single women buy homes. After all, Flynn points out, “The time frame for meeting your dream man, getting married, and having kids—well, that’s a pretty long timeline.” So even if you do meet The One a day after closing on your home, “you could sell your home in a few years and still make a profit—or at the worst, probably break even.” If you buy right, that is.

That said, women who do want to marry and have kids as soon as possible will want to eye their potential home purchase with that in mind. Is the new place big enough for a family? Or, if you think you’ll sell and move into a larger place once you’re hitched, how easy will it be to sell your original home—or are you allowed to rent it out?

And if you marry or a partner moves in, make sure to consult a lawyer if you want your partner to share homeownership along with you.

“You definitely should not assume that your spouse’s home is transferred automatically to you once you get married,” says David Reiss, an urban law professor at Brooklyn Law School.

Who Knows The ABCs of Finance?

Annamaria Lusardi recently posted a working paper, Financial Literacy: Do People Know the ABCs of FInance? to SSRN. The abstract reads,

Increasingly, individuals are in charge of their own financial security and are confronted with ever more complex financial instruments. However, there is evidence that many individuals are not well-equipped to make sound saving decisions. This paper looks at financial literacy, which is defined as the ability to process economic information and make informed decisions about financial planning, wealth accumulation, debt, and pensions. Failure to plan for retirement, lack of participation in the stock market, and poor borrowing behavior can all be linked to ignorance of basic financial concepts. Financial literacy impacts financial decision-making, with implications that apply to individuals, communities, countries, and society as a whole. Given the lack of financial literacy among the population, it may be important to remedy it by adding financial literacy to the school curriculum.

As I have stated previously, not only is financial literacy in bad shape, but efforts to improve it have not proven to be very effective. Lusardi’s paper has some sobering findings:

most individuals in the United States and in other countries cannot
perform simple calculations and do not understand basic financial concepts such as interest compounding, the difference between nominal and real values, and risk diversification. Knowledge of more complex concepts, such as the difference between bonds and stocks, the workings of mutual funds, and basic asset pricing, is even scarcer. Financial illiteracy is widespread among the general population and particularly acute among specific demographic groups, such as women, the young and the old, and those with low educational attainment. (3)

Because evidence does not demonstrate that additional financial education is all that effective, I take a different lesson from Lusardi’s review of survey results. The government should take an active role in regulating financial markets to protect consumers from abusive behavior and to encourage them to make good financial decisions. Financial education is no replacement for consumer protection.