What Determines Consumer Financial Distress? Place- and Person-Based Factors

58 Pages Posted: 2 Mar 2020

See all articles by Benjamin J. Keys

Benjamin J. Keys

The Wharton School - University of Pennsylvania, Real Estate Department

Neale Mahoney

University of Chicago Booth School of Business; National Bureau of Economic Research (NBER)

Hanbin Yang

Harvard University

Multiple version iconThere are 2 versions of this paper

Date Written: February 2020

Abstract

We use credit report data for a representative sample of 35 million individuals over 2000-2016 to examine consumer financial distress in the United States. We show there are large, persistent geographic disparities in consumer financial distress, with low levels in the Upper Midwest and high levels in the Deep South. To better understand these patterns, we conduct a "movers" analysis that examines how financial distress evolves when people move to places with different levels of financial distress. For collections and default, there is only weak convergence following a move, suggesting these types of financial distress are not primarily caused by place-based factors (such as local economic conditions, loan supply, and state laws) but instead reflect person-based characteristics (such as financial literacy and risk preferences). In contrast, for personal bankruptcy, we find a sizable place-based effect, which is consistent with anecdotal evidence on how local legal factors influence the bankruptcy filing decision. Individual characteristics determine whether you get into financial distress, while place-based factors determine whether you use bankruptcy to get out.

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Suggested Citation

Keys, Benjamin J. and Mahoney, Neale and Yang, Hanbin, What Determines Consumer Financial Distress? Place- and Person-Based Factors (February 2020). NBER Working Paper No. w26808, Available at SSRN: https://ssrn.com/abstract=3547156

Benjamin J. Keys (Contact Author)

The Wharton School - University of Pennsylvania, Real Estate Department ( email )

Philadelphia, PA 19104-6330
United States

Neale Mahoney

University of Chicago Booth School of Business ( email )

5807 South Woodlawn Ave
Chicago, IL 60637
United States
773.702.9278 (Phone)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hanbin Yang

Harvard University ( email )

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