How Demographics, Place, and Rules Impact Portfolio Composition: Data from the Historical Survey of Consumer Finances and Implications for the Distribution of Wealth

University Of California-Irvine, Irvine CA

Investigators

Abstract

This project digitizes and disseminates the historical Survey of Consumer Finances (h-SCF) from 1947-1977 and complementary data on household insurance holdings that fills an important gap in the data collected by the h-SCF. The h-SCF includes data on household demographics, location, income, assets, debts, purchase intentions, and even financial beliefs, sophistication, and expectations, among other topics. These data are unique for including information on household geography (crucial, e.g., for studying exposure to local rules or regional economic conditions) and economic expectations (important, e.g., to understanding the wedge between beliefs and behavior) that are lacking in existing data sets. Life insurance was a then-prevalent and biased savings vehicle that is poorly covered in the SCF and understudied generally. This newly digitized data can serve as an empirical foundation for models of inflation, portfolio choice, consumption, and other matters critical to rule design. This project illustrates the utility of the data by using it as the basis for a series of research papers on the causes and consequences of heterogeneity as they relate to financial decision-making and household wellbeing. This project makes several contributions. The first set of contributions pertains to data. The novel data the project generates will provide new answers about America’s past that resonate in the present. Specifically, these data will allow researchers to chart the evolution of financial behavior, wealth, and heterogeneity over a period that both is historically significant (encompassing major demographic, economic, and rule change) and offers a clean setting for causal identification. The data will also allow critical but hitherto largely ignored spatial considerations to inform future research on long-run wealth accumulation, heterogeneity, and intergenerational mobility; and enable more rigorous and micro-founded long-run analysis and rule design, increasing the timespan for testing macro models relying on household data. By filling gaps in the data available to study household finance and the evolution of American wealth and heterogeneity, this data contribution relieves a major constraint both to historical and economic knowledge, and to equitable, evidence-based rule design. The second set of contributions pertain to economic theory. The project advances knowledge on portfolio composition in the past and the causes and consequences of portfolio-choice differences, among other phenomena. Associated papers will illuminate, among other things, the extent to which practical barriers to financial access shape portfolios; whether the initial exclusion of Black households from Social Security can help explain their persistently higher participation in life insurance today, despite the decline in its returns; and the demographically redistributive effects of inflation. These papers explicitly consider the role of group identity at the intersection of macro and household finance and generate new evidence to inform policies that have substantive implications for economic justice and equality of opportunity. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.