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

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. * The results in this paper were calculated (or derived) based on credit data provided by TransUnion, a global information solutions company, through a relationship with the Kilts Center for Marketing at The University of Chicago Booth School of Business. All views expressed and any errors contained in this paper are solely those of the authors.

Debt‐relief programs and money left on the table: Evidence from Canada's response to COVID‐19

“…Region fixed effects are also sometimes included—there is strong evidence of persistent regional effects in the levels of financial distress (see, for instance, Keys et al. 2020).…”

“…In some of the regressions, we allow for lender fixed effects to capture potentially (unobserved) supply-side determinants of debt relief. 31 Region fixed effects are also sometimes included-there is strong evidence of persistent regional effects in the levels of financial distress (see, for instance, Keys et al 2020).…”

Financial distress and money attitudes.

“…While there is increasing interest in financial distress and well-being in psychology, economics, and business research, there is little agreement on definitions or measures. As noted by Mahendru (2020), much study of financial well-being and distress has focused on "objective measures" such as household indebtedness, savings behavior, and insolvency (e.g., Keys et al, 2020). Such measures are important, especially in estimating population prevalence of financial difficulties and allow the use of existing large data sets.…”

Persistence in Alcohol Consumption: Evidence from Migrants

“…2 Other papers using data of movers have estimated the impact of urban sprawl on obesity (Eid et al, 2008), the impact of location on health-care utilization (Finkelstein et al, 2016), food consumption in India (Atkin, 2016), intergenerational mobility (Chetty and Hendren, 2018b,a), opioid abuse (Finkelstein et al, 2018), relative obesity (Liu and Zuppann, 2018), physicians practice styles (Molitor, 2018), mortality (Finkelstein et al, 2019), and consumer financial distress (Keys et al, 2020). More generally, the same idea of using movers is used to measure worker and firm effects (Abowd et al, 1999;Card et al, 2013) and teacher effects (Jackson, 2013;Chetty et al, 2014).…”