The Asset Building Program is hosting author Louis Hyman for an event on this Thursday, May 17th to discuss his new book Borrow: The American Way of Debt. Janis Bowdler from National Council of La Raza’s Wealth-Building Policy Project will respond and offer her take on the role debt has played in the economy and consumers’ lives. You can join us in person next Thursday or watch live online.
Louis Hyman, a professor of history of Cornell University, has written extensively on the history of U.S. capitalism, the rise of consumer debt, and the democratization of access to credit for average Americans. The recent financial crisis has generated a great deal of conversation about the personal and moral failings of consumers: did excessive and irresponsible individual borrowing sink the economy? Hyman pushes back on the perception many young Americans have that we are in a time of unparalleled borrowing. In fact, he says, the idea that our grandparents did not borrow is a false one. In this short video, he explains that people in the post-World War II economy were borrowing all the time: for their homes, cars, and even at department stores. What was different then, Hyman asks? For one thing: “They had good paying jobs.” Since the 1970s, personal debt has continued to rise, but wages have not kept pace, he argues. As wages stagnated, debt became profitable and a range of financial institutions cropped up to take advantage of these profits. Today “debt is part of the American way of life.”
However, people of color and lower-income consumers have historically had a different experience with debt than their white or higher income counterparts. Both Louis Hyman and Janis Bowdler have documented the impact of disparate access to quality credit options on communities of color and low-income people. In a 2011 publication, Ending Discrimination, Legitimating Debt: The Political Economy of Race, Gender, and Credit Access in the 1960s and 1970s, Hyman writes that “For those excluded from this credit system, however, consumer life proved much more challenging. Though middle-class white people, particularly men, had ready access to many sorts of credit, low-income African-Americans and women of all classes and races had far greater difficulty borrowing.” Fast forward a few decades and credit is much more available to people of color, women, and those of all incomes. However, many credit options are not the high-quality ones that helped past generations of white, male-headed households build wealth. Janis Bowdler illustrates this pattern with a contemporary example in a piece for the Huffington Post: “Black and Hispanic families were more than twice as likely to be sold subprime loans, even though they had the credit to qualify for regular prime loans.”
Equal access to safe and affordable financial products is a fundamental component of financial security. For those living on the economic edge, the balance between consumer needs and financial institutions’ priorities is off. Higher cost (and sometimes deceptive) credit products that erode a household’s financial stability are readily available, while savings products that can help smooth the financial ups and downs of life are limited. Rebalancing the financial services market for vulnerable consumers requires addressing both ends of the problem. In 2008, Michael Barr, Sendhil Mullainathan, and Eldar Shafir outlined the need for behaviorally informed regulation of the financial services market. For example, regulations that are both consumer and market oriented are moving forward to help separate helpful credit products from harmful ones. On the savings side, innovative programs, such as those outlined in Pamela Chan’s 2011 paper Beyond Barriers, are increasing attention to the value of market research of lower-income consumers and innovations in product design. Developing solutions to economic inequality requires a better understanding of the historical dimensions of debt and credit and the role they play in today’s fragile economy. We welcome you to join us on Thursday for this conversation. People outside the D.C. area can watch also live online (no advance registration is necessary).