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What Determines Consumer Financial Distress? Place- and Person-Based Factors

Author

Listed:
  • Benjamin J. Keys

    (The Wharton School and NBER)

  • Neale Mahoney

    (University of Chicago - Booth School of Business and NBER)

  • Hanbin Yang

    (Harvard Business School)

Abstract

We use credit report data for a representative sample of 35 million individuals over 2000-2016 to examine consumer financial distress in the United States. We show there are large, persistent geographic disparities in consumer financial distress, with low levels in the Upper Midwest and high levels in the Deep South. To better understand these patterns, we conduct a "movers" analysis that examines how financial distress evolves when people move to places with different levels of financial distress. For collections and default, there is only weak convergence following a move, suggesting these types of financial distress are not primarily caused by place-based factors (such as local economic conditions, loan supply, and state laws) but instead reflect person-based characteristics (such as financial literacy and risk preferences). In contrast, for personal bankruptcy, we find a sizable place-based effect, which is consistent with anecdotal evidence on how local legal factors influence the bankruptcy filing decision. Individual characteristics determine whether you get into financial distress, while place-based factors determine whether you use bankruptcy to get out.

Suggested Citation

  • Benjamin J. Keys & Neale Mahoney & Hanbin Yang, 2020. "What Determines Consumer Financial Distress? Place- and Person-Based Factors," Working Papers 2020-12, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-12
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    References listed on IDEAS

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    Cited by:

    1. Pattison, Nathaniel & Millimet, Daniel L., 2023. "A Tale of Two Bankruptcies: Geographic Differences in Bankruptcy Chapter Choice," IZA Discussion Papers 16105, Institute of Labor Economics (IZA).
    2. Paul Goldsmith-Pinkham & Maxim L. Pinkovskiy & Jacob Wallace, 2020. "The Great Equalizer: Medicare and the Geography of Consumer Financial Strain," Staff Reports 911, Federal Reserve Bank of New York.
    3. Marit Hinnosaar & Elaine M. Liu, 2020. "Persistence in alcohol consumption: evidence from migrants," Carlo Alberto Notebooks 620, Collegio Carlo Alberto.
    4. Fong, Joelle H. & Koh, Benedict S.K. & Mitchell, Olivia S. & Rohwedder, Susann, 2021. "Financial literacy and financial decision-making at older ages," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    5. Hinnosaar, Marit & Liu, Elaine M., 2022. "Malleability of Alcohol Consumption: Evidence from Migrants," Journal of Health Economics, Elsevier, vol. 85(C).
    6. Peter Ganong & Damon Jones & Pascal J. Noel & Fiona E. Greig & Diana Farrell & Chris Wheat, 2020. "Wealth, Race, and Consumption Smoothing of Typical Income Shocks," NBER Working Papers 27552, National Bureau of Economic Research, Inc.
    7. Jason Allen & Robert Clark & Shaoteng Li & Nicolas Vincent, 2022. "Debt‐relief programs and money left on the table: Evidence from Canada's response to COVID‐19," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(S1), pages 9-53, February.
    8. Yannelis, Constantine & Zhang, Anthony Lee, 2023. "Competition and selection in credit markets," Journal of Financial Economics, Elsevier, vol. 150(2).

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    More about this item

    JEL classification:

    • G5 - Financial Economics - - Household Finance
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • K35 - Law and Economics - - Other Substantive Areas of Law - - - Personal Bankruptcy Law

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