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Growing Up without Finance

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  • James R. Brown
  • J Anthony Cookson
  • Rawley Heimer

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.

Suggested Citation

  • James R. Brown & J Anthony Cookson & Rawley Heimer, 2017. "Growing Up without Finance," Working Papers (Old Series) 1704, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwp:1704
    DOI: 10.26509/frbc-wp-201704
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    More about this item

    Keywords

    Native Americans; Credit Scores; Household finance; Consumer Credit;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General
    • P48 - Political Economy and Comparative Economic Systems - - Other Economic Systems - - - Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies

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