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Traumatic Financial Experiences and Persistent Changes in Financial Behavior: Evidence from the Freedman's Savings Bank

Author

Listed:
  • Vellore Arthi
  • Gary Richardson
  • Mark Van Orden

Abstract

The failure of the Freedman's Savings Bank (FSB), one of the only Black-serving banks in the early post-bellum South, was an economic catastrophe and one of the great episodes of racial exploitation in post-Emancipation history. It was also most Black Americans' first experience of banking. Can events like these permanently alter financial preferences and behavior? To test this, we examine the impact of FSB collapse on life insurance-holding, an accessible alternative savings vehicle over the late 19th and early 20th centuries. We document a sharp and persistent increase in insurance demand in affected counties following the shock, driven disproportionately by Black customers. We also use FSB migrant flows to disentangle place-based and cohort-based effects, thus identifying psychological and cultural scarring as a distinct mechanism underlying the shift in financial behavior induced by the bank's collapse. Horizontal and intergenerational transmission of preferences help explain the shock’s persistent effects on financial behavior.

Suggested Citation

  • Vellore Arthi & Gary Richardson & Mark Van Orden, 2024. "Traumatic Financial Experiences and Persistent Changes in Financial Behavior: Evidence from the Freedman's Savings Bank," NBER Working Papers 32576, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32576
    Note: CF DAE IFM
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    More about this item

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • I30 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General
    • N21 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: Pre-1913
    • N22 - Economic History - - Financial Markets and Institutions - - - U.S.; Canada: 1913-
    • N31 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: Pre-1913
    • N32 - Economic History - - Labor and Consumers, Demography, Education, Health, Welfare, Income, Wealth, Religion, and Philanthropy - - - U.S.; Canada: 1913-

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