Past Due: Monthly Child Tax Credits, Credit Use, and Debt among Low-Income Mothers

• In Event: 20852 - Poverty

Abstract

Raising a child often brings financial challenges. Low-income parents may use credit and debt to cope financially when earnings and public benefits fall short. Policy responses to COVID-19 offered low-income parents potential temporary relief from the financial difficulties of parenthood. We study the effects of the expanded 2021 monthly Child Tax Credit (CTC) on credit and debt use among low-income mothers of infants in Wisconsin. Using individual-level administrative data linked to monthly credit record data from one of the big three credit bureaus in the U.S., we estimate difference-in-discontinuities models that compare changes in credit use and debt for mothers whose first child was born in December 2020, and was thus eligible for monthly 2021 CTC payments, to those for mothers whose first child was born in January 2021 and was thus ineligible for payments. Our intent-to-treat estimates suggest that the expanded 2021 monthly CTC was associated with reduced unsecured debt balances; less intensive use of credit cards, personal finance loans, and alternative financial services loans; and a reduction in past-due debt balances in collections. These findings contribute to a growing body of evidence demonstrating that unconditional cash transfers provide financial relief for low-income parents.

Authors

• Lawrence M Berger, University of Wisconsin-Madison

• Trisha Chanda, University of Wisconsin-Madison

• Rachel E. Dwyer, The Ohio State University

• Jason N. Houle, Dartmouth College

• Alec Rhodes, Purdue University