Date of Award:


Document Type:


Degree Name:

Doctor of Philosophy (PhD)


Family, Consumer, and Human Development


Jean M. Lown


The purpose of this study was to investigate the long-tenn relation between household leverage through the use of mortgages, and changes in household weallh using the theoretical framework of the life cycle income hypothesis. The results of this sltldy are relevant to current positions regarding household leverage via mortgages. This study used the 1992 through 2002 waves of the Health and Retirement Study. The characteristics of leveraged and unleveraged households were compared in 1992 and 2002 as were changes during that period. The relation between household leverage and changes in assets and total resources over the period was modeled using robust regression analysis.

Based on the results of independent 1 tests and chi-square tests, there were statistically significant differences between leveraged and unleveraged The general difference between the two groups was that greater proportions of leveraged households were working in 1992 and 2002 than unleveraged households. This observation was supported by differences in household income, work status trends, age of household head, total resources, and changes in total resources. Unleveraged households had statistically significantly higher assets than leveraged households; however, there was no statistically significant difference in the change in assets between the two groups. households.

Retained or incurred mortgage debt during the study period, relative to not having mortgage debt, had a consistent negative effect on changes in assets and total resources. The initial leverage ratio and square of the initial leverage ratio were not statistically significant in either of the estimated regression models. The effect of eliminating mortgage debt, relative to not having mortgage debt, on changes in assets and total resources was not statistically different from zero.

From the standpoint of maximizing resources, maintaining mortgage debt did not appear to be the best altemative for most households. However, for high-income and more risk-tolerant households, mortgage debt was beneficial and enhanced increases in assets and total resources. While the use of mortgage debt for investment capital had the potential to increase total resources, households may have derived greater satisfaction from using the mortgage proceeds for consumption, given their preferences and expectations. Implications for consumers, financial professionals, educators, and tax policymakers were drawn from the resu lts of the study.