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Working Paper

Growing Up without Finance

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 large and unintended differences in financial market development across Native American reservations. Individuals who grow up on financially underdeveloped reservations enter formal credit markets later than individuals from financially developed reservations and have persistently worse consumer credit outcomes (10 point lower credit scores and a 4 percentage point increase in delinquent accounts). These differences are equal to the effect of a $6,000 decrease in annual personal incomes. The effects are long-lived: The financial health of individuals who grow up on and leave financially underdeveloped reservations takes more than a decade to converge with those from financially developed reservations.

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

Suggested Citation

Brown, James R., J. Anthony Cookson, and Rawley Z. Heimer. 2017. “Growing Up without Finance.” Federal Reserve Bank of Cleveland, Working Paper No. 17-04.