Growing Up Without Finance
76 Pages Posted: 14 Jul 2016 Last revised: 10 Mar 2020
Date Written: September 8, 2016
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 unintended differences in financial market development across Native American reservations. Individuals from financially underdeveloped reservations enter consumer credit markets later, and upon reaching adulthood, have 10 point lower credit scores and 4 percentage point more delinquent accounts. These effects are long-lived and depreciate slowly after individuals move to more developed areas. Formative exposures to local banking improve consumer credit behavior by increasing financial literacy and financial trust.
Keywords: Household finance, Law and finance, Consumer credit, Early-life experiences, Banking development
JEL Classification: G21, K40, P48
Suggested Citation: Suggested Citation