Investigating U.S. Household Consumer Banking Behaviors in the Twenty-First Century: The Relationship Between Unbanked Consumers and the U.S. Financial Crisis of 2007-2008

Abstract

The height of the recent U.S. financial crisis during 2007-2008 is often remembered for its unprecedented government bailouts, the collapse of large financial institutions, and a dramatic fall in stock prices around the world. However, there is an argument to be made that the financial crisis has had an equally significant impact on the household level, as families across the country were forced to manage decreases in net worth, take on increased financial burdens, and navigate fiscally difficult decisions in the midst of a national mood plagued by uncertainty. In particular, there is evidence to suggest the financial crisis affected U.S. household banking behaviors and attitudes toward large financial banking institutions, raising policy questions with respect to the extent to which Americans engage in mainstream financial services to engender savings, build credit, and prepare for the future.

As such, this paper explores the relationship between U.S. household banking behaviors prior to the financial crisis of 2007-2008 and in its aftermath and specifically focuses on observing trends among unbanked households (or households without traditional accounts at banks or other financial institutions). In order to do so, I use data from the Federal Reserve Board's 2001, 2004, 2007, and 2010 Survey of Consumer Finances (SCF) to the compare and contrast the household banking behaviors of consumers across four demographic characteristics of interest--race, income status, educational attainment, and age. In addition to measuring consumer-banking behaviors, this paper also observes patterns in household expectations for future U.S. economic performance. Overall, the results in this paper reveal that in the aftermath of the 2007-2008 financial crisis, more households found themselves banked in absolute terms than households before the crisis. However, the findings suggest that proportionally, there are still gaps that may prohibit economic inclusion among certain demographic groups--in particular, low-income, less educated, younger households of minority status. Focusing on these demographic factors, policymakers should continue to monitor and work to eliminate the widening gap between unbanked and banked households in an effort to promote economic stability and prosperity for all.