Household liquidity and financial innovations: Evidence from the Survey of Consumer Finances

In this dissertation, I use data from the Survey of Consumer Finances (SCF) to examine issues related to household liquidity. Specifically, I investigate the extent to which recent financial innovations have provided greater availability and affordability of credit to households traditionally constrained by the credit markets---namely, low-income and minority families. I begin by examining how credit access has changed for all U.S. households over the last 20 years. Using a direct measure of liquidity constructed from the SCF, I estimate the gap between actual and desired borrowing and examine how it is changed over time and across households. I find that since 1983 the ability of households to obtain their desired debt levels has increased over time. In general, this finding holds true across households regardless of their permanent earnings, age, gender, or race. Those experiencing the greatest gains in credit access have been black households and households with low permanent earnings. I next investigate how credit access has changed for divorced men and women. I find that access to credit has increased for divorced households since 1989, with the greatest gains occurring between 1992 and 1998. Over this period, men have seen a more dramatic increase in their access to credit than women. A plausible explanation is that men have experienced a more significant improvement in their overall financial position relative to women and thus in their level of creditworthiness. Finally, I investigate the consequences of providing additional and more affordable liquidity. Specifically, I examine whether increases in access to credit have contributed to the recent rise in delinquencies and bankruptcies. I find little evidence that providing additional and more affordable credit opportunities increases the probability of delinquency and bankruptcy.;In the end, the results of this dissertation support the hypothesis that recent efforts to provide additional and more affordable credit have resulted in increased borrowing opportunities, especially for traditionally constrained households. The findings further suggest that recent efforts to increase access to credit have been beneficial since they have given households the opportunity to better smooth their consumption without contributing to household repayment problems.