The Time of Finance: The Temporal Structures of Consumer Credit
Cologne, February 2015
Felipe González
There is no doubt that finance is all about time. No matter if mortgages, consumer loans, sovereign debt or corporate bonds, financial instruments bind the past with the present and the future. In a simple consumer loan exchange, for example, consumers´ past behavior is evaluated with complex risk classification techniques, and resources are brought to the present in exchange for the promise of future payments (a logic that applies to all sorts of exchanges in financial markets; such as credit default swaps, securitized debts or government bonds). By the same token, at the political level governments “buy time” when using resources from the future in the form of “sovereign debt” in order to tackle distributive conflicts in the present time, while at the level of interpersonal relations an individual “buys time” when borrowing money from a relative in order to pay a credit card bill that she could eventually not pay “on time”.
That “time matters” in finance sounds very much like a naïve statement; and yet, “time” is one of the “forgotten subjects” in the economic sociology of financial markets, which also holds true for most parts of the extant financialization literature. This is something economists seem to understand quite well when theorizing economic behavior in temporal terms. Concepts such as “inter-temporal choices”,"hyperbolic discounting" or the broadly accepted “life-cycle hypothesis”, for instance, are part of the standard “explanatory toolkit” in economics. The latter, indeed, has been particularly important in explaining consumers´ behavior and represents one of the most broadly accepted frameworks in the field of personal finance. According to this hypothesis, individuals redistribute their purchasing power among different periods of their lives in order to maximize their lifetime utility through saving and borrowing. Since incomes are usually smaller at early stages of the life-cycle, increase in the middle, and draw back with retirement, consumers seek to smooth their consumption by borrowing during the early low-income stage, build wealth and repay their debts during the high income-stages, and spend savings during retirement.
Sociologists, on the other hand, have largely relied on explanatory factors different than “time structures” when understanding why do people acquire consumer debts, such as emulative behavior, lifestyle creation, consumerism, morality, broad institutional arrangements or lack of financial literacy. This makes a remarkable contrast with the works of economists, especially if we consider that there is an important sociological tradition tackling the temporal structure of social life. Life-course studies, for instance, have long suggested that the crucial role of the social meaning that different cohorts and societies share about the “social timing”, that is, the “…incidence, duration, and sequences of roles, and to relevant expectations and beliefs based on age”. (Elder/Johnson/Crosnoe 2006). In this vein, it is in part through the “social timing” that multiple trajectories and their synchronies and asynchronies are shaped. But does “social timing” shapes economic action? Or more specifically, what is the social time of consumer finance?
The present essay seeks to tackle this gap by empirically exploring and theorizing the “time of finance” in the sphere of consumer lending. Following the main intuitions of “life-course” studies, the paper explores financial practices of middle-class families in Chile, showing how different "temporal structures" that overlap, contradict and reinforce each other, drive the financialization of consumption and shape the “time of finance”. More specifically, the paper shows the intertwinement of three empirically intertwined but analytically distinguishable temporal orders in the utilization consumer loans.
Firstly, there seems to be what we can call a “life-world time” structured by the local and specific social relations within which a particular individual is embedded. Social commitments such as weddings, birthdays or other ceremonies, for example, are directly related to the specific ties of an individual or a family, which can simply not be transferred to others. These entail in many cases important financial efforts, and people seek to honor their social commitments and care relations by making gifts on time and in many cases enhancing them.
On the other hand, there is an “institutional time” that formally regulates the calendar throughout a year, such as the opening of school season, holidays, Christmas or national celebrations. These dates shape the structure of people´s budget by demanding them important financial efforts, for which consumers choose to save in advance, acquire debts or simply restrain themselves. Moreover, the “institutional time” also shapes important life-transitions that entail important financial decisions, such as having a college education or coping with retirement.
Finally, making echo of economists´ claims, there is the “time of the life-cycle”, which normatively prescribes the timing of life-transitions throughout the life-course, such as getting married, buying the first car, gaining economic independence or moving to one´s home.
Interestingly, these three socially determined temporal dimensions seem to structure financial practices through what Beckert (2010) pointed out as the main social forces shaping the dynamics of markets: networks, institutions and cognitive maps. Thus while the “time of the life-world” is basically shaped by the network of interpersonal relations, the “institutional time” is bounded to existing formal regulations of the calendar. Finally, expected life-transitions throughout the life-course serve as a cognitive map according to which people normatively assess their consumption standards and sequences.