The relationship between households and financialisation. Financialisation is a term used to refer to the process of making and accumulating profit through financial channels in financial institutions rather than the conventional way of trade and production of commodities. The behaviour of household consumers keeps changing depending on payment stagnation, increase in inequalities in income earning and difficulties in securing a job. According to Fligstein and Goldstein (2015), households react to changes in financial status to protect their current way of life or to be at the bar with the economy that is ever risky as time goes by. Their study discovered that household consumers present an aggressive means to manage their financial assets and in dealing with their liabilities.
Household consumers who use credit to purchase goods and services have experienced exponential growth in their economic status. Examining the level of debts will analyse the financialisation of households and the economic stresses they go through due to their financial culture. The argument is that individuals and families that consume loans for their daily needs lead to debts that impact their economic welfare. Using the example of the Anglo-American economy that provides some tools to analyse the effects of debt and consumerism to wage stagnation can be understood. A sample of 26 households in Chile was selected to participate in interviews to find out how they financed their consumption. The research showed that majority of the households took many types of loans and debts other than personal loans from financial institutions to carry out their projects such as starting small businesses, regulating social reproduction in their homes, and paying off other loans and debts (González, 2015). The argument is that indebtedness of households for consumption does not occur due to defensive consumption. Secondly, financialisation helps in shaping social relationships among households by applying disciplinary actions, increasing the standards of consumers, and facilitating or hindering social reproduction. In other words, financialisation helps to create an understanding of debt to households.
There are financial risks involved with the aspects of financialisation and its relation to bank lending, developing financial institutions, the rating of the financial instruments used in commercial and credit services. The global economy is exposed to the risks of the instability of the economy due to changes in the management of financial institutions and the banking sector. The sub-prime segment of the mortgage market has been known to cause a global crisis that occurred in 2007. Global Financial Crisis (GFC) has been caused by financial systems in the past. Excessive bank loaning and the increase in developing security for loans are some of the causes of GFC. Consumers play an essential role in the financialisation of housing and mortgages depending on their creditworthiness. The use of securities in acquiring mortgage loans, the scoring of credit history of clients, and pricing of houses based on the risks involved have influenced the mortgage market leading to its financialisation. The sub-prime sector has transformed from providing credit for homeowners to facilitating investments on a global scale. The volatility of the mortgage markets has increased due to more global investments and the linking of local homeowners to global markets.
Financialisation has provided a platform to them by using the entities of financial services offered by banks and financial institutions. Due to the desire of banks and stakeholders to make more profit, households have been granted an opportunity to take more debt and save their finances for their services. However, it comes with great risks of financial instability and the global financial crisis.
References
Fligstein, N., " Goldstein, A. (2015). The emergence of a finance culture in American households, 1989–2007. Socio-Economic Review, 13(3), 575-601.
González, F. (2015). Where are the Consumers? ‘Real households’ and the financialisation of consumption. Cultural Studies, 29(5-6), 781-806.
