Most US households stayed averse to financial risk even during the 1990s boom

Evidence

The SCF data indicate that risk tolerance among American households rose sharply during the 1990s, but then retreated a little after 2001. We suspect this pattern reflects increasing household participation in the stock market during the bubble of the 1990s, which was followed by the stock market crash in 2001. Overall, the percentage of households who say they take no financial risks declined from 47% in 1989 to 35% in 2001, and then crept back to 39% in 2007, which is still a statistically significant change. The percentage of households who say they take above average or high risks rises from 14% in 1989 to 25% in 2001 and then dips to about 22% by 2007 (also a statistically significant difference). This implies a rejection of Hypothesis 3a that there was no change in attitudes towards risk. The timing of these changes is consistent with Akerlof and Schiller’s (2009) argument that the rising stock market attracted households who wanted to be part of the ‘new’ economy and accustomed them to be more comfortable with risk-taking (see also Langley, 2008). There is some cyclicality in the risk responses over time that reflects recent stock market performance (Yao et al., 2004), but some of the shift appears to be permanent. It is worth emphasizing, however, that between 75 and 85% of all households report taking either average risk or no risk throughout the period. If a self-conscious culture of aggressive financial risk-taking emerged in the USA, it is restricted to less than a quarter of households. — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 109

Categorization

• SHARE: The thesis that aggressive risk-taking culture touched under a quarter of households is a sharp corrective for anyone writing about the ‘risk everything’ 1990s investor.
• ADDENDUM: Directly relevant to financialization of everyday household life — household risk acceptance as an everyday-life dimension of financialization.
• XREF: connects to: Households borrowed heavily to preserve their lifestyles amid economic insecurity. — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 41; Households signal financialization through risk-taking, relaxed debt attitudes, and speculative strategies — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 48; Acceptance of debt and risk differs sharply by socioeconomic class — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 120

Related

• Households signal financialization through risk-taking, relaxed debt attitudes, and speculative strategies (similarity 0.86)
• Financialized risk-taking is concentrated in the upper middle class, not spread across all earners (similarity 0.85)
• Acceptance of debt and risk differs sharply by socioeconomic class (similarity 0.83)
• Financial risk-taking emerges in middle classes as a response to top-end inequality. (similarity 0.80)
• Households borrowed heavily to preserve their lifestyles amid economic insecurity. (similarity 0.79)
• Upper-middle-class risk-taking is a defensive response to falling behind the top 2% (similarity 0.79)
• Household financialization involves adopting new entrepreneurial mindsets, not just buying more financial products. (similarity 0.78)

Broader Connections

• Households signal financialization through risk-taking, relaxed debt attitudes, and speculative strategies #complicates (0.80) — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 48
• Acceptance of debt and risk differs sharply by socioeconomic class #expands (0.75) — Neil Fligstein & Adam Goldstein, The Emergence of a Finance Culture in…, 120