Household financial decision making

We survey the literature studying household financial decision making. Our chapter would focus on how households make decisions regarding their consumption, savings, investment and borrowing. We explore the basic theoretical foundations underpinning each household decision followed by a summary of important empirical results in the literature. We discuss studies that fall within following four themes - 1) how households deviate from the utility maximizing rational behaviour while making financial decisions; 2) role of government, central banks, regulators, financial institutions and external factors in influencing household decisions; 3) household heterogeneity in financial decision making; and 4) similarities and differences in household behavior across countries and between developed and developing countries. We also look at how recent development in fintech has revolutionized the way households interact with fintech platforms in lending, payments, investments and trading.