Working Paper

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

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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.

Households have had more access to new forms of assets and debts and new ways to fund their lifestyles. This occurred at the same time that income inequality and job insecurity increased dramatically in the U.S. We show that a more risk taking culture that engages in more active financial management emerges amongst the middle and upper middle classes. We suggest that these households are feeling the effects of growing inequality at the top more acutely and they respond by changing how they think about their financial lives. For those lower on the income distribution, financial strategies are more of a defensive strategy to get by. Those at the top embrace finance as an opportunity to preserve and extend their lifestyles.