Consequently, the young may not have access to the credit they need to even out consumption to the extent they would like. A pledge of assets—collateral—can help to solve this problem, since it can be claimed by the lender in the event of a loan default. For most households, the main form of wealth is human capital—the value of the wages that the household members can earn over the course of their lifetimes. But human capital cannot always be credibly pledged as collateral. For funding of educational investments, government intervention in the form of the federally-guaranteed student loan program helps address this problem. While private student loans exist, they typically require a co-signer with a strong credit record. Moreover, these borrowing sources are broadly restricted to education-related spending 1/5  BIS central bankers' speeches  only. The second most important asset on the balance sheet of many households is housing equity. So, in addition to being a source of shelter, housing can be a major form of collateral for borrowing for many households. In fact, for those households that have collateral available to secure loans, housing equity is by far the most important form of collateral. What this tells us is that the performance of the housing and mortgage markets are important to the retail business. When home prices are rising and housing equity can easily be converted into cash, we can expect to see relatively high levels of consumption, all else equal.
William C Dudley: Evolving consumer behavior Remarks by Mr William C Dudley, President and Chief Executive Officer of the Federal Reserve Bank of New York, at the National Retail Federation Annual Convention, New York City, 17 January 2017. * * * Andrew Haughwout, Joseph Tracy and Wilbert van der Klaauw assisted in preparing these remarks. Good morning. It is a pleasure to have the opportunity to speak at this year’s gathering of the National Retail Federation. Retail activity plays a key role in the U.S. economy, with consumption comprising about two-thirds of total gross domestic product. As such, understanding what is happening in your sector is critical in assessing the economic outlook—and, with that, the outlook for employment, inflation and interest rates. As always, what I have to say reflects my own views and not necessarily those of the Federal Open Market Committee or the Federal Reserve System This morning, I will be focusing on retail spending—an important element of household consumption. But, I will do so in a way that’s perhaps somewhat different from the usual approach, focusing in particular on the connections between housing and retail sales. I will argue that there have been some dramatic changes that have taken place in the way that households finance their consumption. I believe—and hope to convince you—that changes in the housing and mortgage markets have affected the willingness and ability of households to borrow, and that this, in turn, has had important consequences for the dynamics of consumption over the last decade.