Household Financial Entanglement

Why should we be concerned?

Europe’s households are becoming ever more reliant on the financial system to help them access the basic goods and services they need to live. On the one hand, they are being forced to save more in financial instruments, especially to have private pensions and insurance (where our premiums are invested in financial markets). And on the other hand, they are being forced to borrow more, especially for housing and education, but also for cars and basic consumption. Many households even hold both long term financial assets and liabilities: they are effectively lending to themselves and paying the financial system to do so!

The indicator

Eurostat provides a measure of households’ financial assets and liabilities. Both have been rising for many years. At first, this may seem like a good thing as households are getting ‘richer.’ But what’s really happening is that services once provided by the family, by the community, by the state, or by other non-market ways are now being provided via the market. What’s more they are provided via the market in a way that needs people to take on financial assets and/or liabilities just to satisfy these basic needs.

Like most measures of ‘wealth’ rising financial assets are not a measure of how well households are living but of how much of their lives have entered into the capitalist economy and can be measured! Rising financial assets in Europe today don’t reflect a rise in wellbeing, but a shift from non-financial to financial systems of provision.

Focussing on households as a single group also masks deep inequality amongst them. Rich households may well in fact be getting richer thanks to holdings of financial assets. The poorest are more likely to be in debt, paying interest to the financial system and to the holders of debt (typically the rich!).

Household’s Financial Assets and Liabilities (EU-28, €billions)

What should we change?

Society should provide for our basic needs, including housing, education, healthcare and in our old age, without us having to become completely entangled in the financial system. When we do have recourse to financial instruments, then everyone should have access to basic, low-cost, transparent and un-exploitative financial services. You can find more detailed policy ideas elsewhere on the Finance Watch website and on the Change Finance website.