Working Paper

Growing Up without Finance

Abstract: Early-life exposure to local financial institutions increases household financial inclusion and leads to long-term improvements in consumer credit outcomes. We identify the effect of local financial markets using congressional legislation that led to large and unintended differences in financial market development across Native American reservations. Individuals who grow up on financially underdeveloped reservations enter formal credit markets later than individuals from financially developed reservations and have persistently worse consumer credit outcomes (10 point lower credit scores and a 4 percentage point increase in delinquent accounts). These differences are equal to the effect of a $6,000 decrease in annual personal incomes. The effects are long-lived: The financial health of individuals who grow up on and leave financially underdeveloped reservations takes more than a decade to converge with those from financially developed reservations.

Keywords: Native Americans; Credit Scores; Household finance; Consumer Credit; ;

JEL Classification: G21; K40; P48;

https://doi.org/10.26509/frbc-wp-201704

Bibliographic Information

Provider: Federal Reserve Bank of Cleveland

Part of Series: Working Papers (Old Series)

Publication Date: 2017-05-02

Number: 1704

Pages: 62 pages