In this brief history of U.S. consumer finance since World War II, the sector is defined based on the functions delivered by firms in the form of payments, savings and investing, borrowing, managing risk, and providing advice. Evidence of major trends in consumption, savings, and borrowing is drawn from time-series studies. An examination of consumer decisions, changes in regulation, and business practices identifies four major themes that characterized the consumer finance sector: innovation that increased the choices available to consumers; enhanced access in the form of consumers' broadening participation in financial activities; do-it-yourself consumer finance, which both allowed and forced consumers to take greater responsibility for their own financial lives; and a resultant increase in household risk taking.
ANDREA RYAN holds a PhD in sociology and conducts research on urban studies, social inequality, and race and ethnicity. She was a research associate at Harvard Business School from 2008 to 2010 and now works in the nonprofit sector.
GUNNAR TRUMBULL is associate professor of business administration at Harvard Business School, where he conducts research on consumer politics in the United States and Europe. He is the author of Consumer Capitalism: Politics, Product Markets and Firm Strategy in France and Germany, and of a forthcoming book on consumer credit in the United States and France.
PETER TUFANO is Peter Moores Dean and professor of finance at Saïd Business School, University of Oxford. He was the Sylvan C. Coleman Professor of Financial Management at Harvard Business School. His recent research and teaching focus on consumer finance issues. He is co-organizer of the Household Finance working group at the National Bureau of Economic Research, coeditor of the Social Science Research Network's Household Finance, and founder and chairman of the Doorways to Dreams Fund, a non-profit organization that develops new financial products to serve the needs of low- to moderate-income households.
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42 See Souphala Chomsisengphet and Anthony Pennington-Cross, “The Evolution of the Subprime Mortgage Market,” Federal Reserve Bank of St. Louis Review (Jan./Feb. 2006). Available at: http://research.stlouisfed.org/publications/review/06/01/ChomPennCross.pdf.
43 Federal Reserve Bank of San Francisco, “The Subprime Mortgage Market: National and Twelfth District Developments,” Annual Report, 2007. Available at: http://www.frbsf.org/publications/federalreserve/annual/2007/subprime.pdf. See also Chomsisengphet and Pennington-Cross, “The Evolution of the Subprime Mortgage Market,” which reports slightly different numbers, stating that the subprime market share of all originations went from 10.2 percent in 1995 to a peak of 14.5 percent in 1997 and then down to 8.4 percent in 2001.
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72 The Survey of Consumer Finances was conducted in a different form prior to 1989. The data from these earlier years are not reliable for use in a time series and therefore are not included here.
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95 Rummel, “Secret History of the Credit Card.”
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97 A historical narrative of this change is told by David Tucker in his 1991 book, The Decline of Thrift in America, and is an element of the story of increased household leverage as told in Manning, Robert D., Credit Card Nation: The Consequences of America's Addiction to Credit (New York, 2000) [Google Scholar].
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101 Federal Reserve Board, Survey of Consumer Finances, 1960, 1970, and 2007. There is no weighting documentation for these surveys. Data are assumed to be self-weighting.
102 Federal Reserve Board, Survey of Consumer Finances, 1989–2007.
103 Bureau of Economic Analysis.
104 Federal Reserve Board, “Flow of Funds.”
105 Credit-card debt from “revolving” credit figures was taken from Bureau of Economic Analysis, Flow-of-Funds data.
106 Federal Reserve Board, “Consumer Credit Data,” series G.19 (7 Mar. 2011).
107 Ratio of liabilities to assets in 1950 (Q4) was .068 and in 2009 (Q3) it was .208. Federal Reserve Board, “Flow of Funds.”
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113 See also Ferguson, The Ascent of Money. On page 12 he states, “A society that expects most individuals to take responsibility for management of their own [finances, taxes, homeownership, retirement and health insurance] is surely storing up trouble for the future by leaving its citizens so ill-equipped to make wise financial decisions.”
114 U.S. Bureau of the Census.
115 Sumit Agarwal, John C. Driscoll, Xavier Gabaix, and David Laibson, “The Age of Reason: Financial Decisions over the Lifecycle,” NBER Working Paper no. 13191, 2007.