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Intergenerational Linkages in Household Credit

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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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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2016-31.

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Length: 56 pages
Date of creation: 21 Dec 2016
Date of revision: 21 Dec 2016
Handle: RePEc:fip:fedfwp:2016-31
DOI: 10.24148/wp2016-31
Note: First Draft: November 5, 2015. This Draft: December 21, 2016
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