Intergenerational Linkages in Household Credit, Link to FRB SF WP
by Andra Ghent and Marianna Kudlyak, 2016, FRB San Francisco WP No. 16-31.
Abstract: 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.
Keywords: Household Finance, Intergenerational Mobility, Credit Constraints, Income Inequality.
Presentations: Boulder Summer Conference on Consumer Financial Decision Making, Boulder Summer Conference 2016 Information, Boulder, Colorado (May 2016)