The main contents of this chapter include all of the following: Credit cards, home equity loans, etc; laws to protect consumers; rising levels of consumer debt, concerns about rising personal bankruptcy; the transformation wrought by new information technology. | Lecture 18: The Democratization of Finance: Consumer Finance Trends in Democratization of Finance Financial and insurance institutions began with intellectuals and wealthy class Gradual spread of risk management institutions required marketing, spread of financial enlightenment, government support Radical Financial Innovation Example I: Insurance Burial societies ancient Rome, true insurance policies appeared in Italy in 14th century Rapid development of actuarial theory starting in1600s with notion of probability Morris Robinson Mutual Life of NY 1840: highly-paid salesmen (agency theory) Henry Hyde Equitable Life Assurance Society 1880s: large cash value (psychological framing) Viviana Zelizer: challenging God and tempting fate (psycholoogical framing) Inventions copied around the world Life insurance is a relic, of a day when people died young Radical Financial Innovation Example II: Social Security Germany, 1889 first national pension plan Financial theory: concept of insurance (Versicherung), large risks, Lujo Brentano, Gustav Schmoller Psychological theory: overconfidence, wishful thinking, hyperbolic discounting Schriften des Vereins für Sozialpolitik Information technology making this possible: paper, typewriters, filing cabinets, German bureaucracy, pasting 11 million stamps on cards Invention copied around the world, same social security principles in U. S. today Glitches in the Democratization of Finance Lack of consumer financial sophistication invites their manipulation Simple failures of judgment—behavioral finance Consumer inexperience has compounded errors Median Level of Assets First Income Decile, US Households with Heads Aged 51-61, 1992 Financial Assets: 0 Retirement assets: 0 IRA: 0 401k: 0 Pension: 0 Vehicles: $300 Home Equity: 0 Home value: 0 Total Wealth: $5000 Median Level of Assets, Fifth Income Decile, US Households with Heads Aged 51-61, 1992 Financial Assets: $3000 Retirement Assets: 0 IRA: 0 401(k): 0 Pension: $4000 Vehicles: $6000 . | Lecture 18: The Democratization of Finance: Consumer Finance Trends in Democratization of Finance Financial and insurance institutions began with intellectuals and wealthy class Gradual spread of risk management institutions required marketing, spread of financial enlightenment, government support Radical Financial Innovation Example I: Insurance Burial societies ancient Rome, true insurance policies appeared in Italy in 14th century Rapid development of actuarial theory starting in1600s with notion of probability Morris Robinson Mutual Life of NY 1840: highly-paid salesmen (agency theory) Henry Hyde Equitable Life Assurance Society 1880s: large cash value (psychological framing) Viviana Zelizer: challenging God and tempting fate (psycholoogical framing) Inventions copied around the world Life insurance is a relic, of a day when people died young Radical Financial Innovation Example II: Social Security Germany, 1889 first national pension plan Financial theory: concept of insurance .
