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Federal Reserve Bank of San Francisco
Working Paper Series
Intergenerational Linkages in Household Credit
Andra C. Ghent
Marianna Kudlyak

We document novel, economically important correlations between children’s future credit risk scores, default, and homeownership status and their parents’ credit characteristics measured when the children are in their late teens. A one standard deviation higher parental credit risk score when the child is 19 is associated with a 24 percent reduction in the likelihood that the child goes bankrupt by age 29, a 36 percent lower likelihood of other serious default, a 35 point higher child credit score, and a 23 percent higher chance of the child becoming a homeowner. The linkages persist after controlling for parental income. The linkages are stronger in cities with lower intergenerational income mobility, implying that common factors might drive both. Existing measures of state-level educational policy have limited effects on the strength of the linkages. Evidence from a sample of siblings suggests that the linkages might be largely due to family fixed effects.

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Andra C. Ghent & Marianna Kudlyak, Intergenerational Linkages in Household Credit, Federal Reserve Bank of San Francisco, Working Paper Series 2016-31, 21 Dec 2016, revised 21 Dec 2016.
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Note: First Draft: November 5, 2015. This Draft: December 21, 2016
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DOI: 10.24148/wp2016-31
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