How Financialization Has Turned Ordinary People Into Investors And Risk Bearers

A visualization of an ordinary person navigating risky markets.

In recent decades, finance has spread far beyond its traditional roots of Wall Street and corporate treasuries. Citizens increasingly face a world in which they are expected to act as investors assuming risks that were once the burden of employers or the state. They also have to navigate complex financial landscapes such as housing, retirement, and digital assets. This transformation has profound implications for the distribution of wealth and opportunity.

One of the most visible shifts in financialization is the retirement system. In the mid-twentieth century, most U.S. workers had access to defined benefit (DB) pension plans. This entailed employers promising a fixed retirement income, meaning they bore the investment and longevity risk. Over time, these DB arrangements have largely been replaced by defined contribution (DC) plans, such as 401(k) accounts, where individuals set aside a chosen percentage of their salary in a tax free retirement account and employers can match it. When defined contribution plans were introduced in the 1980s, the pitch was empowerment: you control your future. The actual reality was that it was astronomically cheaper for employers to rely on workers to bear their own retirement risks.

As the Center for Retirement at Boston College observed, this shift “moved nearly all investment and longevity risk from employers to households.” For countless workers, the result has been uncertainty and financial insecurity, rather than freedom. A 2023 report from the National Institute on Retirement Security supports this. It found that five states which switched to DC plans saw poor retention of workers and higher negative cash flow in their economies. Thus, taxpayers would have to bear the burden of this, “supporting the costs of two plans [DC and DB] for many decades.”

This same logic has transformed housing as well. A home was once the social foundation, a center of both family and community. Today, it’s simply an asset. Since the 1990s, homeownership has been sold as the key to wealth building, especially in the United States. People are encouraged to buy homes, again, for freedom to do what they want, when they want. They aren’t informed that they might lose more than they gain through interest rates, zoning policies, and depreciating values. When markets rise, homeowners are indestructible; when they crash, the result can be the destruction of whole communities—as the 2008 Financial Crisis proved. 

If wealth comes from owning things instead of earning, then most citizens, who can’t afford assets, fall further behind. In other words, the financialization of housing further perpetuates wealth inequality. More affluent individuals can leverage and reinvest, while those who are forced to rent just pay the price.

An image showing the Robinhood app on the App Store.

Financial technology has turned finance into a lifestyle, one fueled by adrenaline and anxiety. Crypto wallets, trading apps, and robo-advisors invite everyone to join the market. An example of this would be Robinhood, which is a stock-trading platform that offers investing free of commission. Its popularity rose tremendously during the COVID-19 pandemic due to increased market volatility, but more realistically, it was because people were bored and had more time on their hands, since most were ordered to stay at home.

Robinhood’s mission statement of “democratizing finance for all” sounds empowering, but it’s often misleading. The average Robinhood account holds under $5000, yet users trade options and stocks at institutional speeds. Users have been shown to be sentiment-driven, and Robinhood has received pushback for allowing users to access risky investment options. They’ve also gotten criticism for heavily promoting their services to inexperienced, young investors.

The empowerment promised by financialization comes at a high price. Citizens are exposed to market volatility, debt cycles, and complex financial products they lack knowledge about. Behavioral economists note that loss aversion and emotional decision-making frequently lead investors to buy high and sell low, amplifying losses.

When millions of small investors pour their earnings into equities, stock-trading, or crypto, they supply a large, low-cost pool of capital. Corporations reap the benefits of higher stock variations, lower borrowing costs, and a loyal investor base.

Even the government itself is perpetuating the idea that anyone can be an investor. In 2021, the U.S. Securities and Exchange Commission (SEC) launched outreach programs promoting “retail investor participation” in markets, even though only 39% of Americans felt confident they could come up with a mere $1000 for an emergency expense. This isn’t accidental—it’s strategic. When the citizens’ wealth is tied to the stock market and home values, they maintain the system that supports said markets. This way, U.S. leaders are able to sustain growth without increasing public spending. By promoting private investment and debt, they can offload economic risk from the state onto individuals and still keep the GDP high.

We’re told to invest early, save aggressively, buy property, and manage risks, all while wages stagnate and costs of living climb. When people fail to meet these ideals, they are deemed financial failures rather than victims of a world stacked against them.

The financialization of everyday life has given average citizens the tools once reserved for elites. However, it has also given these people the responsibilities and risks that come with them. We can’t just focus on how much we gain when markets rise; it’s vital to understand who bears the losses when they fall.