On Intergenerational Immobility: Evidence that Adult Credit Health Reflects the Childhood Environment

Using a novel dataset that links socioeconomic background to future credit, postsecondary education, and federal student loan and grant records, we document that, even though it is not and cannot be used by credit agencies in assigning risk, background is a strong predictor of adult credit health. A relationship remains upon inclusion of achievement, attainment, and debt management metrics. These findings reveal a new dimension along which childhood circumstances persist into adulthood and imply that the many important contexts in which credit scores are relied upon to evaluate individuals (e.g., lending, insurance, employment) may be helping to preserve inherited inequities. 1 Email: [email protected], [email protected], and [email protected]. This paper does not necessarily reflect the views of the Federal Reserve Board. A previous version of this paper was circulated as “Where Credit Is Due: The Relationship between Family Background and Credit Health.” We thank Kyle Coombs, Peter Hansen, and Steve Ramos for excellent research assistance, and Bradley Hardy, Don Carmichael, Joanne Hsu, Karen Pence, Michael Palumbo, and Ronel Elul for helpful comments. We thank participants at the 2016 Association for Education Finance and Policy Annual Conference, the 2016 FRS Applied Micro Conference, the fall 2016 FRB Applied Micro Lunch seminar, the 2017 Society of Labor Economists Annual Meeting, the 2017 International Banking, Economics, and Finance Association Sessions of the Western Economic Association International Annual Conference, the 2017 Boulder Summer Conference on Consumer Financial Decision Making, and the 2017 FDIC Annual Consumer Research Symposium. All errors are our own. 2