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A Brief Postwar History of U.S. Consumer Finance

Abstract

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.

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1 Friedman Milton, Free to Choose: A Personal Statement (New York, 1980).

2 For a thorough historical review of money and financial services, including both institutional and consumer perspectives, see Ferguson Niall, The Ascent of Money: A Financial History of the World (New York, 2008). See the following articles for further discussion of the functional perspective: Crane Dwight B. et al. , eds., The Global Financial System: A Functional Perspective (Cambridge, Mass., 1995); Merton Robert C. and Bodie Zvi, “A Conceptual Framework for Analyzing the Financial Environment,” in The Global Financial System: A Functional Perspective, ed. Crane Dwight B., et al. (Boston, Mass., 1995).

3 The respective shares of each type of electronic payment as of 2008 are as follows: credit (26 percent of volume, 18 percent of transactions), debit (17 percent, 24 percent), prepaid (2 percent, 4 percent), and other preauthorized and remote payments (12 percent, 6 percent). The Nilson Report, no. 939 (Dec. 2009) and no. 729 (Dec. 2000).

4 D'Silva Vijay, “Payments in Flux: Megatrends Reshape the Industry,” in Moving Money: The Future of Consumer Payments, Brooking Institution, ed. Litan Robert E. and Baily Martin N. (Washington, D.C., 2009).

5 Tufano Peter, “Financial Innovation and First Mover Advantage,” Journal of Financial Economics 25 (1989): 213–40.

6 In 1960, 48 percent of families had installment debt as compared to 50 percent in 1989 and 47 percent in 2007. Federal Reserve Board, Survey of Consumer Finances (Washington, D.C., 1960, 1989, 2007).

7 See an excellent discussion of risk-management as it applies to both households and macro-economies in Shiller Robert, The New Financial Order: Risk in the Twenty-first Century (Princeton, 2003).

8 Later amendments expanded disability coverage further. See a chronology of the Social Security Administration at http://www.ssa.gov/history/chrono.html (accessed Aug. 2010).

9 Moss David, When All Else Fails: Government as the Ultimate Risk Manager (Cambridge, Mass., 2002), 215.

10 Harrington Brooke, Pop Finance: Investment Clubs and the New Investor Populism (Princeton, 2008); Das Sanjiv, Martinez-Jerez Asis, and Tufano Peter, “E-Information,” Financial Management 34 (Autumn 2005).

11 Chicoye Jean, “Les achats à credit,” Revue de l'action populaire 140 (July–Aug. 1960): 786–98.

12 Bureau of Economic Analysis, Personal Consumption Expenditures (Washington, D.C., 1990).

13 Black Hillel, Buy Now, Pay Later (New York, 1961); Calder Lendol, Financing the American Dream: A Cultural History of Consumer Credit (Princeton, 1999); Cohen Lizabeth, A Consumer's Republic: The Politics of Mass Consumption in Postwar America (New York, 2003); Cohen Lizabeth, “From Town Center to Shopping Center: The Reconfiguration of Community Marketplaces in Postwar America,” American Historical Review 101, no. 4 (1996); Gelpi Rosa-Maria and Julian-Labruyere Francois, The History of Consumer Credit: Doctrine and Practices (New York, 2000); Glickman Lawrence B., ed., Consumer Society in American History: A Reader (Ithaca, N.Y., 1999); Harrington, Pop Finance; Horowitz Daniel, The Anxieties of Affluence: Critiques of American Consumer Culture, 1939–1979 (Amherst, Mass., 2004); Mandell Lewis, The Credit Card Industry: A History (Boston, 1990); Monti Daniel J., The American City: A Social and Cultural History (Oxford, 1999); Nocera Joseph, A Piece of the Action (New York, 1994); Schor Juliet, The Overspent American: Why We Want What We Don't Need (New York, 1999); Schudson Michael, “Delectable Materialism: Second Thoughts on Consumer Culture,” in Consumer Society in American History: A Reader, ed. Glickman Lawrence B. (Ithaca, N.Y., 1999); Sheldon Eleanor Bernert, “Family Economic Behavior: Problems and Prospects (Philadelphia, 1961); Tucker David M., The Decline of Thrift in America: Our Cultural Shift from Saving to Spending (New York, 1991); Williams Brett, Debt for Sale: A Social History of the Credit Trap (Philadelphia, 2004).

14 Glickman Lawrence B., ed., Consumer Society in American History: A Reader (Ithaca, N.Y., 1999).

15 Cohen, A Consumer's Republic, 195.

16 Federal Reserve Board, Survey of Consumer Finances (Washington, D.C., 1950).

17 In short, capitalism needs consumers, and production-oriented institutions were poised to create demand however they could. Schor Juliet B. and Holt Douglas B., “Introduction: Do Americans Consume Too Much?” in The Consumer Society Reader, ed. Schor Juliet B. and Holt Douglas B. (New York, 2000); Strasser Susan, Satisfaction Guaranteed: The Making of the American Mass Market (New York, 1989).

18 Bordo Susan, “Hunger as Ideology,” in The Consumer Society Reader, ed. Schor Juliet B. and Holt Douglas B. (New York, 2000); John Kenneth Galbraith, “The Dependence Effect,” in The Consumer Society Reader, ed. Schor and Holt; Klein Lloyd, It's in the Cards: Consumer Credit and the American Experience (Westport, Conn., 1999).

19 Klein, It's in the Cards; Logemann Jan, “Different Paths to Mass Consumption: Consumer Credit in the United States and West Germany during the 1950s and 1960s,” Journal of Social History 41 (2008): 525–59; Schor, The Overspent American; Twitchell James B., Lead Us into Temptation: The Triumph of American Materialism (New York, 1999). Much of the work is also related to Bourdieu Pierre, Distinction: A Social Critique of the Judgment of Taste (Cambridge, Mass., 1984); and Veblen Thorstein, The Theory of the Leisure Class (New York, 1973, 1st ed. 1899).

20 Schor and Holt, “Introduction: Do Americans Consume Too Much?”

21 Monti, The American City; Calder, Financing the American Dream; Cross Gary S., An All-Consuming Century: Why Commercialism Won in Modern America (New York, 2000); Martin John Levi, “The Myth of the Consumption-Oriented Economy and the Rise of the Desiring Subject,” Theory and Society 28, no. 3 (1999): 425–53, McCracken Grant, Culture and Consumption: New Approaches to the Symbolic Character of Consumer Goods and Activities (Bloomington, Ind., 1988); Trentmann Frank, “Beyond Consumerism: New Historical Perspectives on Consumption,” Journal of Contemporary History 39, no. 3 (2004): 373401. See also Zelizer Vivana, “Culture and Consumption,” in The Handbook of Economic Sociology, ed. Smelser Neil J. and Swedberg Richard (Princeton, 2005), 331–54.

22 Cross Gary S., “Consumer History and the Dilemmas of Working-Class History,” Labour History Review 62, no. 3 (1997): 261–74.

23 Cohen, “From Town Center to Shopping Center.” See also Monti, The American City.

24 Cohen, A Consumer's Republic; Ownby Ted, American Dreams in Mississippi: Consumers, Poverty, and Culture, 1830–1998 (Chapel Hill, N.C., 1999); Weems Robert E. Jr., “The Revolution Will Be Marketed: American Corporations and Black Consumers during the 1960s,” in Consumer Society in American History: A Reader, ed. Glickman Lawrence B. (Ithaca, N.Y., 1999).

25 On car ownership in 1949, see Federal Reserve Board, Survey of Consumer Finances (Washington, D.C., 1950); for home ownership in 1949, see Federal Reserve Board, Survey of Consumer Finances (Washington, D.C., 1960); and Federal Reserve Board, Survey of Consumer Finances (Washington, D.C., 2007).

26 Bureau of Economic Analysis, Flow-of-Funds data. The savings rate, however, remained fairly steady during this time, averaging 8.90 percent between 1950 and 1986, after which it began to decline steadily.

27 Cohen, A Consumer's Republic; Harrington, Pop Finance.

28 Miller Merton, Financial Innovations and Market Volatility (London, 1991).

29 The old adage “There's nothing new under the sun” has a strong element of truth. Merton writes about an innovation spiral, in which one innovation creates the platform on which others build so that little is truly original. Tufano provides examples of this spiral, and of forgotten innovations from earlier times that are uncannily like the newest of financial products. For example, the appendix from the first edition of Graham and Dodd's investing classic, Security Analysis, lists over two hundred security innovations, many of which resemble the complex securities designed in the 1980s and 1990s. Merton Robert C., “Financial Innovation and Economic Performance,” Journal of Applied Corporate Finance 4, no. 4 (1992); Tufano Peter, “Financial Innovation,” in Handbook of the Economics of Finance, ed. Constantinides George, Harris Milton, and Stulz Rene (Amsterdam, 2003); and Graham Benjamin and Dodd David, Security Analysis, 6th ed. (New York 2009, 1st ed. 1934). Ferguson, in The Ascent of Money, likens developments in the financial sector to evolution in nature, where weaker institutions die out and new types of businesses, growing out of speculation as much as economic scale and scope, push their way in.

30 The idea for an automated file transfer system came about in the early 1970s. The Federal Reserve helped to consolidate smaller programs into the nationwide clearinghouse, which formed in 1974. See the Federal Reserve Web site: http://www.newyorkfed.org/aboutthefed/fedpoint/fed31.html.

31 W. Scott Frame and Lawrence J. White, “Technological Change, Financial Innovation, and Diffusion in Banking,” Federal Reserve Bank of Atlanta working paper 2009–10 (2009).

32 Electronic Payments Network, “The Electronic Payments Network and the ACH: A History” (New York, n.d.), on-line at http://www.epaynetwork.com/cms/documents/001743.pdf; Garcia-Swartz Daniel D., Hain Robert, and Layne-Farrar Anne, “The Move toward a Cashless Society: A Closer Look at Payment Instrument Economics,” Review of Network Economics 5, no. 2 (2006).

34 “The Electronic Payments Network and the ACH.”

35 Investment Company Institute, 2009.

36 Data from http://www.nyxdata.com/factbook, visited 4 May 2010.

37 Fink Matthew, The Rise of Mutual Funds: An Insider's View (New York, 2008).

38 Federal Reserve Board, “Flow of Funds Accounts of the United States,” series Z.1 (10 Mar. 2011). These figures include all assets of households and nonprofits.

39 The fixed-rate, long-term, fully-amortizing mortgage was made possible through the Home Owner's Loan Corporation established in 1933 (and the precursor to Fannie Mae) and the National Housing Act of 1934 (which created the Federal Housing Administration). Prior to the Depression era, mortgages commonly were only available for a five-to-ten year term and required a large payment toward principal at the end of the term. Most also had variable rates. These loans all but required that they be refinanced at the end of the term. Green Richard K. and Wachter Susan M., “The American Mortgage in Historical and International Context,” Journal of Economic Perspectives 19, no. 4 (2005): 93114; Morris D. Crawford, “Types and Sources of Home-Mortgage Financing,” Analysts Journal (June 1955).

40 Title VIII of the St. Germain Depository Institutions Act of 1982 made it possible for mortgage interest rates to be adjusted or renegotiated. Green and Wachter, “The American Mortgage.” See also William H. Lacy, “Innovation Is a Key to Banks' Meeting Home-Financing Needs,” ABA Banking Journal (May 1982): 118–21.

41 “Characteristics of Outstanding Residential Mortgage Debt: 2006,” Mortgage Bankers Association (MBA) Research DataNotes, Jan. 2007, available at: http://www.mortgagebankers.org/files/Bulletin/InternalResource/47210_DataNoteCharacteristicsofOuttandingResidentialMortgageDebtfor2006.pdf.

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.

44 Schlosser Michel and Tardy Gérard, Les cartes de crédit (Paris, 1971).

45 Recollections by Wallis B. Hocker, Retired Credit Manager, 1989, responses to clarifying questions, 6–7, JC Penney Corporate Records, Southern Methodist University, Dallas, Tex.

46 Lelia Easson, “New Developments in Consumer Credit,” Journal of Home Economics (Dec. 1959): 847.

47 E. J. Kersting, Credit Cards: Thirty Days to Reality (Aug. 1967), box 35, folder 4, R obert L. D. Morse Papers, Kansas State University, Manhattan, Kans. [hereafter Morse papers].

48 Evans David S. and Schmalensee Richard, Paying with Plastic: The Digital Revolution in Buying and Borrowing (Cambridge, Mass., 1999).

49 Schlosser and Tardy, Les cartes de crédit, 13.

50 Geoffrey R. Gerdes and Jack K. Walton II, “The Use of Checks and Other Noncash Payment Instruments in the United States,” Federal Reserve Bulletin (Aug. 2002); Federal Reserve Board, The 2004 Federal Reserve Payments Study, Analysis of Noncash Payments Trends in the United States: 2000–2003 (Washington, D.C., 2004). The number of check payments is estimated to have peaked in 1995 at 49.5 billion. See Quinn Stephen and Roberds William, “The Evolution of the Check as a Means of Payment: A Historical Survey,” Economic Review 4 (2008): 23. Data provided by the Nilson Report no. 939 (Dec. 2009) show that check volume dropped below 50 percent of the total payment volume (including cash) as of 1999. Between 2000 and 2003, the fraction of check-based transactions dropped from 58 percent to 45 percent, and the volume of these payments dropped from 66 percent to 55 percent of total volume.

51 Richard Cantor and Frank Packer, “The Credit Rating Industry,” Federal Reserve Bank of New York Quarterly Review (Summer–Fall 1994); Hidy Ralph W., “Credit Rating before Dun and Bradstreet,” Bulletin of the Business Historical Society 13, no. 6 (1939); Madison James H., “The Evolution of Commercial Credit Reporting Agencies in Nineteenth Century America,” Business History Review 48, no. 2 (1974); Olegario Rowena, “Credit Reporting Agencies: A Historical Perspective,” in Credit Reporting Systems and the International Economy, ed. Miller Margaret J. (Cambridge, Mass., 2003); and Wyatt-Brown Bertram, “God and Dun & Bradstreet,” Business History Review 40, no. 4 (1966).

52 Malterre André, “Problème du credit à la consommation,” Journal Officiel 20 (11 Aug. 1961): 764.

53 Hyman Louis, “Debtor Nation,” Enterprise & Society 9, no. 4 (2008).

54 Marron Donncha, “‘Lending by Numbers’: Credit Scoring and the Constitution of Risk within American Consumer Credit,” Economy and Society 36, no. 1 (2007): 103–33.

55 Mark Furletti, “An Overview and History of Credit Reporting,“ Federal Reserve Bank of Philadelphia discussion paper, 2002.

56 Randall S. Krosner, “The Motivations Behind Banking Reform,” Regulation (2001): 36–41.

57 Esty Ben, Tufano Peter, and Headley Jonathan, “Bancone Corporation: Asset and Liability Management,” Journal of Applied Corporate Finance 7 (1994): 3351.

58 See the history of JPMorgan Chase at the company's Web site: http://www.jpmorgan.com/pages/jpmc/about/history.

59 Smith, Barney & Co. merged with Harris, Upham & Co. in 1987; was acquired by Primerica, a public financial services company, in 1993; became a wholly owned subsidiary of Travelers Group, in 1997; was combined with Saloman, Inc.; and then in 1998 became part of Citigroup. See Citigroup Web site: http://www.citigroup.com/citi/corporate/history/smithbarney.htm.

60 For an “obituary” of Sears-Allstate-Coldwell Banker-Dean Witter-Discover, see J. Feder Barnaby, “Sears, Returning to its Roots, is Giving up Allstate,” New York Times, 10 Nov. 1994.

61 For a brief summary of Fannie Mae's history, see the Funding Universe Web site: http://www.fundinguniverse.com/company-histories/Fannie-Mae-Company-History.html.

62 Loutskina Elena and Strahan Philip E., “Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations,” Journal of Finance 64, no. 2 (2009).

63 Frame Scott W. and White Lawrence J., “Fussing and Fuming about Fannie and Freddie: How Much Smoke, How Much Fire?Journal of Economic Perspectives 19 (2005).

64 U.S. Department of Treasury, Comptroller of the Currency Liquid and Funds Management, “Asset Securitization Comptroller's Handbook” (Washington, D.C., 1997).

65 Mortgage data from Figure 2 in Rosen Richard J., “The Role of Securitization in Mortgage Lending,” in Chicago Fed Letter: Essays on Issues, Federal Reserve Bank of Chicago (Chicago, 2007). Revolving and nonrevolving debt data from Federal Reserve Board, “Consumer Credit,” Federal Reserve Statistical Release, Series G19 (7 Mar. 2011) at: http://www.federalreserve.gov/releases/g19/Current/.

66 Ashcraft Adam B. and Schuermann Til, “Understanding the Securitization of Subprime Mortgage Credit,” in Staff Reports, Federal Reserve Bank of New York (New York, 2008); Antje Berndt and Anurag Gupta, “Moral Hazard and Adverse Selection in the Originate-to-Distribute Model of Bank Credit” (2008), available at Social Science Research Network (SSRN): http://ssrn.com.ezp-prod1.hul.harvard.edu/abstract=1290312; Coval Joshua, Jurek Jakub, and Stafford Eric, “The Economics of Structured Finance,” Journal of Economic Per spectives 23, no. 1 (2009); Matias Hoffman and Thomas Nitschka, “Securitization of Mortgage Debt, Asset Prices, and International Risk Sharing,” Institute for Empirical Research in Economics, University of Zurich, Working Paper Series (2008); Loutskina and Strahan, “Securitization and the Declining Impact of Bank Finance on Loan Supply: Evidence from Mortgage Originations”; Mayer Christopher, Pence Karen, and Sherlund Shane M., “The Rise in Mortgage Defaults,” Journal of Economic Perspectives 23, no. 1 (2009); Atif Mian and Amir Sufi, “The Consequences of Mortgage Credit Expansion: Evidence from the 2007 Mortgage Default Crisis,” National Bureau of Economic Research (NBER) working paper 13936 (2008); Amiyatosh Purnanandam, “Originate-to-Distribute Model and the Subprime Mortgage Crisis,” American Finance Association Atlanta Meetings Paper, 2010, available at SSRN: http://ssrn.com.ezp-prod1.hul.harvard.edu/abstract=1167786; Shiller Robert J., The Sub prime Solution: How Today's Global Financial Crisis Happened and What to Do about It (Princeton, 2008).

67 Evans and Schmalensee, Paying with Plastic.

68 Mann Ronald J., Charging Ahead: The Growth and Regulation of Payment Card Markets (Cambridge, U.K., 2006), 2527.

69 Richard L. D. Morse, statement before the Subcommittee of the Kansas Senate Committee on Financial Institutions, 18 Dec. 1969, 2, box 212, folder 12, Morse papers.

70 Mandell, The Credit Card Industry.

71 Arthur Morris, founder of the Morris Plan consumer lending banks, claims to have coined this term. It was also used by Henry Wolff, an early advocate for the adoption of credit unions. Arthur J. Morris, “Fifty Years Creating and Developing the Morris Plan System of Consumer Bank,” speech to the Consumer Bankers Association, 25 Oct. 1956, box 17, speeches and writings file, 1918–60, Arthur J. Morris papers, Library of Congress, Washington, D.C.

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.

73 Federal Reserve Board, Survey of Consumer Finances, various years.

75 Cohen, A Consumer's Republic; U.S. Riot Commission (more commonly known as the Kerner Commission), Report of the National Advisory Commission on Civil Disorders (Washington, D.C., 1968).

76 Caplovitz David, The Poor Pay More: Consumer Practices of Low Income Families (New York, 1963); Kerner Commission, Report of the National Advisory Commission on Civil Disorders, 7.

77 Kornbluh Patricia Ann, “A Right to Welfare? Poor Women, Professionals, and Poverty Programs, 1935–1975,” PhD diss., Princeton University, 2000; Sachs Andrea Jule, “The Politics of Poverty: Race, Class, Motherhood, and the National Welfare Rights Organization, 1965–1975,” PhD diss., University of Minnesota, 2001.

78 Edelstein Robert H., “Improving the Selection of Credit Risks: An Analysis of a Commercial Bank Minority Lending Program,” Journal of Finance 30, no. 1 (1975): 39.

79 Billie Venable Sessoms, Suzanne Nelsen, and Patricia Smith, “A Preliminary Report on Women and Credit,” report prepared by the North Carolina Chapter of National Organization for Women, Durham, N.C. chapter, 15 Oct. 1973, box 211, file 41, National Organization for Women archives, Schlessinger Library, Radcliffe Institute, Harvard University, Cambridge, Mass.

80 Zelon Laurie D., “Equal Credit Promise or Reality?Harvard–Civil Rights–Civil Liberties Law Review 11 (1976); Davis Flora, ed., Moving the Mountain: The Women's Movement in America since 1960 (Champaign, Ill., 1999).

81 Coalition The Urban, Consumer Credit and the Low Income Consumer: Preliminary Report (Rockville, Md., 1969).

82 Sistershares, Newsletter of the Massachusetts Feminist Federal Credit Union,” 2, no. 1–4 (19761977).

83 This was alleged to be the card companies' intention. Rummel David, “Secret History of the Credit Card,” in Frontline (Public Broadcasting System, 2004).

84 Calder, Financing the American Dream.

85 Moebs Services, Survey (2009).

86 MBA, “The Residential Mortgage Market and Its Economic Context in 2007,” 30 Jan. 2007. Available at: http://www.mbaf.org/pdf/2007/Residential%20Mortgage%20Market%20Report%202007.pdf.

87 Greenspan Alan and Kennedy James, “Sources and Uses of Equity Extracted from Homes,” Oxford Review of Economic Policy 24, no. 1 (2008): 120–44, available at SSRN: http://ssrn.com/abstract=1154417 or doi:10.1093/oxrep/grn003 (2008).

88 Based on LIMRA (a worldwide association of financial and service companies) estimates of U.S. individual life, annualized new premium market share by product, and LIMRA definitions.

89 Kaiser Family Foundation and Health Research and Educational Trust, “Employer Health Benefits 2007 Annual Survey” (Menlo Park, Calif., 2007).

90 Federal Reserve Board, “Flow of Funds Accounts of the United States,” series Z.1 (10 Mar.2011), supplementary tables L.118b and L.118c.

91 U.S. Supreme Court, Marquette Nat. Bank v. First of Omaha Svc. Corp., 439 U.S. 299 (1978), no. 77-1265.

92 Furletti Mark, “The Debate Over the National Bank Act and the Preemption of State Efforts to Regulate Credit Cards,” Temple Law Review 77 (2004).

93 Hacker Jacob, The Great Risk Shift: The Assault on American Jobs, Families, Health Care, and Retirement—and How You Can Fight Back (New York, 2006).

94 The amount of risk consumers take on is also psychologically related, including the fact that we tend not to understand the probability of facing certain risks. See Shiller, The New Financial Order. Also, as our colleague Robert Merton has noted, consumers become comfortable with risks as they increase their (successful) experience with them.

95 Rummel, “Secret History of the Credit Card.”

96 Bureau of Economic Analysis, “Spendthrift Nation,” Federal Reserve Bank of San Francisco Economic Letter 2005–30 (2005).

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).

98 For accounting purposes, appreciation of financial and housing assets does not constitute “savings.”

99 Federal Reserve Board Data, Flow-of-Funds Accounts. Includes vacant land.

100 Global Financial Data on-line database, “S&P 500 Total Return Index” (with GFD extension).

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.”

108 Federal Reserve Board, Survey of Consumer Finances, 1960 and 2007.

109 Reed Matthew and Cheng Diane, Student Debt and the Class of 2008 (Berkeley, 2009).

110 Lusardi Annamaria, Schneider Daniel, and Tufano Peter, “Households @ Risk: A Cross Country Study of Household Financial Risk,” in Papers Presented to the 2010 American Economic Association Meeting (Denver, Colo., 2010).

111 Marianne A. Hilgert, Jeanne M. Hogarth, and Sondra Beverly, “Household Financial Management: The Connection between Knowledge and Behavior,” Federal Reserve Bulletin (July 2003); Annamaria Lusardi and Olivia S. Mitchell, “Financial Literacy and Planning: Implications for Retirement Wellbeing,” Michigan Retirement Resource Center working paper no. 2006-144, 2006; Moore Danna, “Survey of Financial Literacy in Washington State: Knowledge, Behavior, Attitudes, and Experiences,” Technical Report no. 03-39, Social and Economic Sciences Research Center, Washington State University, 2003.

112 Annamaria Lusardi and Olivia S. Mitchell, “Planning and Financial Literacy: How Do Women Fare?” American Economic Review (May 2008); Annamaria Lusardi and Peter Tufano, “Debt Literacy, Financial Experience, and Overindebtedness,” Harvard Business School working paper, 2008.

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.

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