Which Families Are Most Vulnerable to an Income Shock? A Look at Race and Ethnicity

December 08, 2020
Stock image of bills to paid written on notebook

The following post is the second in a two-part series on which families are most vulnerable to an income shock like COVID-19.

As outlined in the previous post, debt-to-income ratios, liquid assets, education, age and health are associated with the likelihood of a family becoming seriously delinquent—that is, falling behind at least two months on a loan obligation. Do race and ethnicity also matter for predicting serious delinquency?

In an In the Balance article, Lowell Ricketts, lead analyst for the St. Louis Fed’s Center for Household Financial Stability, and Ray Boshara, the Center’s senior adviser and director, found that, all other factors aside, race and ethnicity can help predict serious delinquency.

Who Is Most at Risk

Raw data showed wide racial and ethnic gaps in serious delinquency, the authors found. Without considering any other factors that could contribute to delinquency rates, Hispanic families were 53% more likely to have been seriously delinquent than white families, and Black families were 117% more likely.

However, after accounting for factors such as safe assets, debt-to-income ratios and education, Hispanic families were 28% less likely to experience a serious delinquency than white families.

Black families, on the other hand, were still 29% more likely to report a serious delinquency than white families, even after accounting for the characteristics mentioned above, according to the authors’ findings. (See the figure below.)

Who Is More Likely to Fall Behind?

Liquid Assets and Debt Burden Have Biggest Effect on Likelihood of Serious Delinquency

Bankruptcy rate change variances according to household finances

SOURCES: Federal Reserve Board’s Survey of Consumer Finances and Center for Household Financial Stability calculations.
NOTES: The bar chart shows the percent change in the likelihood of serious delinquency. Each bar compares two groups. For example, in the sixth bar from top, we see that, on average, Black families were 28.5% more likely to be seriously delinquent than white families, after controlling for the other variables shown here.

So, why would Black families be more likely to fall seriously behind on debt payments? The authors noted that the associations may reflect longer-term structural barriers.

“While we cannot say for sure, it is likely [that] other factors as well as ‘unobservable’ characteristics may help explain the remaining risk of delinquency among Black households,” Ricketts and Boshara wrote. “Those include characteristics related to race and ethnicity not captured by the survey, or impossible for the survey to capture—e.g., the legacy of slavery, historical discrimination and exclusionary asset policies such as ‘redlining.’”

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This blog offers commentary, analysis and data from our economists and experts. Views expressed are not necessarily those of the St. Louis Fed or Federal Reserve System.

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