Financial Trouble Across Generations:Evidence from the Universe of Personal Loans in Denmark
Søren Leth-Petersen and
Louise C. Willerslev-Olsen
Additional contact information
Louise C. Willerslev-Olsen: Department of Economics, University of Copenhagen
EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics
Do people end up in financial trouble simply because of adverse shocks to income and wealth, or is financial trouble related to persistent differences in financial attitudes and behavior that may be transmitted from generation to generation? We address this question using a new administrative data set with longitudinal information about defaults for the universe of personal loans in Denmark. We provide non-parametric evidence showing that the default propensity is more than four times higher for individuals with parents who are in default compared to individuals with parents not in default. This intergenerational relationship is apparent soon after children move into adulthood and become legally able to borrow. The intergenerational relationship is remarkably stable across age groups, levels of loan balances, parental income levels, childhood school performance, time periods and different measures of financial trouble. Basic theory points to three possible explanations of the correlation across generations in financial trouble: ( i ) children and parents face common shocks; (ii ) children and parents insure each other against adverse shocks; (iii ) nancial behavior diers across people and is transmitted across generations. Our evidence indicates that the last explanation is the most important. Finally, we show that the intergenerational correlation in financial trouble is not fully incorporated in interest setting on loans, pointing to adverse selection in the market for personal loans.
Pages: 49 pages
New Economics Papers: this item is included in nep-ban
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed
Downloads: (external link)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (http://web.econ.ku.dk/eprn_epru/Workings_Papers/WP-2016-01.pdf [301 Moved permanently]--> https://web.econ.ku.dk/eprn_epru/Workings_Papers/WP-2016-01.pdf)
Journal Article: Financial Trouble Across Generations: Evidence from the Universe of Personal Loans in Denmark (2020)
Working Paper: FINANCIAL TROUBLE ACROSS GENERATIONS: EVIDENCE FROM THE UNIVERSE OF PERSONAL LOANS IN DENMARK (2017)
Working Paper: Financial Trouble Across Generations: Evidence from The Universe of Personal Loans in Denmark (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:kud:epruwp:1601
Access Statistics for this paper
More papers in EPRU Working Paper Series from Economic Policy Research Unit (EPRU), University of Copenhagen. Department of Economics ï¿½ster Farimagsgade 5, Building 26, DK-1353 Copenhagen K., Denmark. Contact information at EDIRC.
Bibliographic data for series maintained by Thomas Hoffmann ().