Federal Reserve Bank of Boston

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Whitepaper: Social Security And Unsecured Debt

by Federal Reserve Bank of BostonJan 01, 2008

This research paper by University of Chicago describes about most young households simultaneously hold both unsecured debt on which they pay an average of 10 percent interest and social security wealth on which they earn less than 2 percent. Researchers document this fact using data from the Panel Study of Income Dynamics. They then consider a life-cycle model with ""Tempted"" households, who find it impossible to commit to an optimal consumption plan and ""Disciplined"" households who have no such problem, and they explore ways to reduce this inefficiency.