Household Financial Practices and Wealth Mobility in the Era of Mass-Participatory Finance and Growing Inequality

Since the 1980s, the U.S. economy has undergone a fundamental reorientation towards finance (Krippner 2011). As part of this transformation, American households have dramatically changed their financial behavior by increasing their use of consumer financial products and services. During the same period, wealth inequality in the United States soared, surpassing all industrial societies in its extent. By its nature, household financial behavior (i.e., choices about how to command money) is likely to have profound implications for a household’s financial well-being (i.e., the amount of money owned). Yet, little research has examined whether and how household financial behavior is linked to wealth. Another limitation of previous scholarship is its typically fragmented focus on one aspect of financial behavior (mostly borrowing or investing). Uni-dimensional analyses are likely to give an incomplete picture of the complexity of household financial lives and miss important insights. Using the Survey of Consumer Finances, this study extends prior scholarship in two primary ways: by analyzing a wide range of financial attitudes and behaviors and by examining how financial practices are related to wealth mobility, across social groups and over time. First, it identifies three distinctive patterns of use of financial products and services as well as financial prudency habits. Notably, financial practices remain stable over time. Second, household financial practices have distinctive effects on wealth mobility, above and beyond standard socio-economic variables usually considered in the inequality literature. The financial practices of the disadvantaged result in downward wealth mobility while the financial practices of the privileged may facilitate or inhibit upward wealth mobility, depending on the nature of involvement with consumer finance. The analyses cover the 1980s, when the trends of mass-participatory finance and growing wealth inequality had just begun, and the late 2000s, when both trends were well underway. Together, the findings provide a unique description of household financial practices in the era of mass-participatory finance and point to their role in wealth mobility processes as a new mechanism of inequality.