The Demographics of Loan Delinquency: Tipping Points or Tip of the Iceberg?

Loan-delinquency rates differ sharply across demographic groups. Families that are younger, less-educated and non-white are much more likely to miss payments than older, better-educated and white families. Controlling for a host of observable variables—including differences in balance sheets, family structure and measures of luck such as income shocks—reduces but does not eliminate the ability of some demographic factors to predict missed payments. This result provides only limited support for the view that "demographics don’t matter," according to which families with delinquency-prone demographic characteristics miss payments because they simply make riskier choices. These families presumably live closer to the edge financially and more frequently encounter a "tipping point" that pushes them over. An alternative view supported by our data is that systematic forces that include life-cycle effects, socio-economic background, current or historical discrimination and other disadvantage largely shape financial behavior. These structural and systemic factors therefore are important in understanding loan delinquency. Significantly higher delinquency rates among young, less-educated and non-white families may be the "tip of the iceberg" of living with greater financial risk every day.