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The Emergence of a Finance Culture in American Households, 1989-2007


  • Fligstein, Neil
  • Goldstein, Adam


As the financial economy has expanded beginning in the mid 1980s, it has done so in part by selling more products to individuals and households, such as mortgages, second mortgages, mutual funds, student loans, car loans, insurance, and various forms of retirement products. This has allowed households access to new forms of assets and debts and new ways to fund their lifestyles. This giant expansion of the financial services sector occurred at the same time that income inequality and job insecurity increased dramatically in the U.S. This paper seeks to tease out empirically the relationship between these trends by examining data on the activities of households in the past 20 years. There are two views, one that focuses on how households reacted defensively to preserve their lifestyles and the other which focuses on households developing a more financial mindset to the management of their assets, debt, and consumption and thereby using the new opportunities to invest and borrow money to increase their consumption. We show some support for both views. The use of financial products and debt has increased at all levels of the income distribution. Attitudes toward risk and indebtedness have generally become more lax. But, there is also evidence that people at the top of the income distribution are using their growing income to consume more while people lower down are struggling to keep up. The meaning of new financial culture is quite different depending on where you stand in the income hierarchy.

Suggested Citation

  • Fligstein, Neil & Goldstein, Adam, 2012. "The Emergence of a Finance Culture in American Households, 1989-2007," Institute for Research on Labor and Employment, Working Paper Series qt6vp6p588, Institute of Industrial Relations, UC Berkeley.
  • Handle: RePEc:cdl:indrel:qt6vp6p588

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    References listed on IDEAS

    1. Alan Greenspan & James Kennedy, 2008. "Sources and uses of equity extracted from homes," Oxford Review of Economic Policy, Oxford University Press, vol. 24(1), pages 120-144, spring.
    2. Karen E. Dynan & Donald L. Kohn, 2007. "The rise in U.S. household indebtedness: causes and consequences," Finance and Economics Discussion Series 2007-37, Board of Governors of the Federal Reserve System (U.S.).
    3. Gary A. Dymski & Jesus Hernandez & Lisa Mohanty, 2011. "Race, Power, and the Subprime/Foreclosure Crisis: A Mesoanalysis," Economics Working Paper Archive wp_669, Levy Economics Institute.
    4. Peter Tufano, 2009. "Consumer Finance," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 227-247, November.
    5. George A. Akerlof, 2009. "How Human Psychology Drives the Economy and Why It Matters," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(5), pages 1175-1175.
    6. Raghuram G. Rajan, 2010. "Fault Lines: How Hidden Fractures Still Threaten the World Economy," Economics Books, Princeton University Press, edition 1, number 9111.
    7. Cynamon Barry Z. & Fazzari Steven M., 2008. "Household Debt in the Consumer Age: Source of Growth--Risk of Collapse," Capitalism and Society, De Gruyter, vol. 3(2), pages 1-32, October.
    8. repec:ags:afjare:141665 is not listed on IDEAS
    9. Ulrike Malmendier & Stefan Nagel, 2011. "Depression Babies: Do Macroeconomic Experiences Affect Risk Taking?," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 373-416.
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    Social and Behavioral Sciences; American Households; Financial Culture;

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