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By William R. Emmons and Lowell R. Ricketts
Abstract: Loan-delinquency rates differ sharply across demographic groups. Families that are younger, less-educated and non-white are much more likely to miss payments that older, better-educated and white families. Controlling for a host of observable variables – including differences in balance sheets, family structure and measures of luck such as income shocks – greatly reduces but does not eliminate the ability of demographic factors to predict missed payments. This result provides only limited support for the view that “demographics don’t matter,” according to which families with delinquency-prone demographic characteristics miss payments because they simply make riskier choices. These families presumably live closer to the edge financially and more frequently encounter a “tipping point” that pushes them over. An alternative view is that systemic forces that include life-cycle effects, socioeconomic background, current or historical discrimination and other disadvantages largely shape financial behavior. These structural and systemic factors therefore may be important in understanding loan delinquency. Significantly higher delinquency rates among young, less-educated and none-white families may be the “tip of the iceberg” of living with greater financial risk every day.
This working paper was prepared for the conference, “America’s Debt Problem: How Too Much Debt Is Hurting U.S. Household and Holding Back the U.S. Economy,” New York, June 9, 2016.
Original working paper posted June 3, 2016. Tables 2 and 3, A and B updated June 7, 2016.