Changing Household Financial Opportunities and Economic Security

38 Pages Posted: 20 Nov 2009

See all articles by Karen E. Dynan

Karen E. Dynan

Harvard University; Peterson Institute for International Economics

Date Written: November 1, 2009


The principal force behind the many changes in household finances during the past several decades has been an expansion of financial opportunities. Such opportunities can yield benefits in terms of household economic security. However, the financial crisis that began in 2007 has powerfully illustrated that expanded financial opportunities can also pose dangers for households. To explore these issues, I examine household data on wealth, assets, and liabilities going back 25 years and, in some cases, 45 years. I argue that changes in household finances in the decades leading up to the mid-1990s – including the gradual rise in indebtedness – likely increased household well-being, on balance, and contributed to a decline in aggregate economic volatility. However, changes in finances since the mid-1990s – in particular, a much sharper rate of increase in household debt – appear to have been destabilizing for many individual households and ultimately for the economy as a whole. I conclude the paper with some speculations about how the lessons learned in the current crisis might change household financial opportunities and choices going forward.

Keywords: household finances, household debt, saving behavior

JEL Classification: D10, E21, G20

Suggested Citation

Dynan, Karen E., Changing Household Financial Opportunities and Economic Security (November 1, 2009). Available at SSRN: or

Karen E. Dynan (Contact Author)

Harvard University ( email )

Littauer Center
Cambridge, MA 02138
United States

Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

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