The Impact of Early-Life Debt on Household Formation: An Empirical Investigation of Homeownership, Marriage and Fertility
Year: 2008
Type: article
Study design: Observational Study
Abstract: This dissertation employs data from the Survey of Consumer Finances 1992Finances , 1995Finances , 1998Finances , 2001Finances and 2004 rounds to examine the impact that debts accrued early in life, particularly college loans and credit card balances, have on young households after leaving college, focusing on their decisions of homeownership, entry into marriage, and fertility.Chapter 4 delineates a new avenue through which debt may influence young household behavior.I develop a model in which households optimize subject to two constraints, a typical budget constraint and a credit constraint.I use a bivariate probit specification to account for this credit constraint effect and confirm that in the most recent and earliest rounds of the SCF data educational debt lowers the probability of homeownership, although I cannot conclude that this reduction in homeownership is due to the credit constraint effect.I also show that credit card debt is positively related to homeownership in the most recent round and arises through a relaxation of the budget constraint facing households.Chapter 5 considers to what extent debt influences the marriage rates of young households.This chapter bridges the literature between risk-aversion in marriage and financial stress and marital dissolution.I take a novel approach to the conception of risk aversion by hypothesizing that marriage is the risky endeavor when a potential partner brings debt into the relationship, in contrast to the standard assumption that remaining iii single is risky and marriage provides insurance.I outline theoretical considerations that illustrate a scenario in which marriage is the risky option.The results support the hypothesis that risk is a consideration in union formation and that consumer debt is negatively correlated with marriage rates.The final chapter examines how debts influence fertility and family size.I hypothesize that the presence of debt in the household budget constraint will produce delays in fertility as there is a tradeoff between own debt and child quality, in addition to the traditional Becker-Lewis type tradeoff.The data indicate that consumer debts may lead to smaller family size and educational debt leads to pronounced delays in entering fertility, beyond the delays produced by more education, in the most recent round of the SCF.iv To Jim, a tireless source of love and support To my parents v ACKNOWLEDGMENTS Thank you to my advisor, Lucia Dunn, who saw potential in me and was a constant supporter of my work and progress through the program.Her insights, advice and enthusiasm were crucial ingredients in my success.No one knows better than she that her intervention was instrumental in my accomplishment.Thank you to Stephen Cosslett for his patience and technical prowess.I greatly appreciate his willingness to provide his expertise and support whenever necessary, which was often.Many thanks to Trevon Logan for his insight into and enthusiasm for this project.He greatly helped me to refine my approaches and find productive avenues for pursuing this line of research.
Author: Jennifer M. Shand
Institution: The Ohio State University
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W2263669893