What Consumer Finance Includes

Consumer finance concerns everyone, but is studied inadequately.
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What Consumer Finance Includes: Consumer finance is the umbrella phrase for financial management as applied to individuals and households. It includes such topics as:

  • Budgeting
  • Managing payments
  • Saving and investing
  • Borrowing
  • Managing risk

Firms operating in the consumer finance sector are concerned with offering products and services related to such matters as payments, saving and credit, among others.

A noteworthy recent development in the field is the launch of a new federal regulatory agency, the Consumer Financial Protection Bureau (CFPB). Its role, broadly stated, is to root out financial frauds aimed at the general public, as well as to act as another watchdog over the financial services industry, to ensure that it acts in the public interest.

Consumer Finance Perspectives: Consumer finance can be studied from 3 principal perspectives:

  • Individuals and households
  • Financial companies and the financial industry
  • The broad political economy

Applicability of Consumer Finance: Apart from its immediate utility to the student, the study of consumer finance also is highly appropriate for anyone who expects to be a financial services professional who will be advising clients on personal finance issues. These career paths include, but are not limited to:

MBA Consumer Finance Courses: Courses in consumer finance are relatively rare in traditional MBA programs, which typically focus strictly on the management of companies and the analysis of corporate financial statements. However, forward-thinking business educators are starting to realize that this is a glaring omission.

Without fully understanding the needs of their clients, managers of financial services firms arguably are ill-prepared to serve them. The same is true for people involved in setting public policy related to consumer finance.

Consumer Finance at Harvard: In the spring semester of 2008, Harvard University began offering a joint elective course in consumer finance for MBA and law school students. It builds upon a two-year-old executive education program designed and taught by Professor Peter Tufano of the Harvard Business School and Prof. Howell Jackson of the Harvard Law School. Jackson is an expert in financial institutions who holds a Harvard MBA.

Their course utilizes concepts from a variety of disciplines, among them behavioral economics, behavioral finance, psychology and sociology. It is designed for students interested in careers in the consumer finance sector, either working for such firms, consulting to them, advising them, investing in them, or regulating them. Students are supposed to gain an understanding of consumer behavior and personal financial decisions, as well as their impacts on the economy as a whole and the political system.

According to Professor Tufano, as he was quoted in the September 2009 issue of the HBS Alumni Bulletin, no other business school among the top 20 in the U.S. or the top 5 in Europe had, up to that time, offered a course in consumer finance.

During its initial semester in the curriculum, this consumer finance course drew 52 students. Most interestingly, one third of the inaugural enrollees came from the Harvard Law School.

Consumer Finance at Other MBA Programs: Following Harvard's lead, other major business schools have begun to offer their own courses in this field. The Columbia Business School, for example, also launched a multidisciplinary course taught by 2 professors with complementary areas of expertise: one in psychology and marketing, the other in finance and economics. Their course catalogue notes that consumer finance is a much larger segment of the economy than corporate finance, and thus is long overdue as a subject of academic study. Specifically, in the U.S., consumers hold more than twice as much assets as corporations, and 50% more liabilities.

Revivals in Consumer Finance Options: In recent years, some national retailers have begun to revive old consumer finance options that had long ago faded into disuse, most notably layaway plans and Christmas clubs. These retailers see benefits for the consumer in offering these less costly and less risky alternatives to buying on credit, and thus the promise of increased sales revenue.

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