Discussion Paper

Climate Change and Consumer Finance: A Very Brief Literature Review

Abstract: Extant research shows that climate change can impose significant costs on consumers’ wealth and finances. Both sea-level rise and flooding from hurricane events led to high price declines and thus wealth loss for homes in coastal areas or in disaster-struck areas, with effects lingering for a number of years in some cases. In terms of consumer finance, while the average consumer is not always significantly negatively affected by a disaster, the vulnerable groups (those with low credit scores and who are low income) can be severely affected, experiencing higher rates of delinquencies and bankruptcies in the aftermath. Banks help mitigate the negative effects in highly impacted areas by increasing their supply of credit, with more beneficial effects found among small and local lenders. Finally, the impacts of natural disasters and climate change on consumer finance can be further influenced by factors such as government assistance and insurance, which can both improve outcomes and induce moral hazard. We caution, however, that evidence reviewed here may be incomplete and calls for further work on all these important issues.

Keywords: climate change; natural disasters; sea-level rise; consumer finance; house prices;

JEL Classification: D10; D14; G50; Q50; Q54; R21; R31;

https://doi.org/10.21799/frbp.dp.2021.04

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Consumer Finance Institute discussion papers

Publication Date: 2021-10-06

Number: 21-04