Parental Debt and Children’s Material Hardship

• In Event: More than Money: The Roles of Wealth, Income and Other Economic Circumstances in Child Development

Abstract

Household debt has increased tremendously in the United States, surpassing levels reached during The Great Recession. Household debt, an important component of household wealth, is considered both a cause and a consequence of growing economic inequality. Although debts may take on many forms, unsecured debt – debt that is not attached to any form of collateral – appears to be one of the more injurious forms of debt. Unsecured debt is associated with negative physical and mental health outcomes for adults and children. However, no study has examined the associations of unsecured debt with material hardship, a key indicator of economic deprivation and a potential pathway through which debt may impact physical and mental health.

Debt burdens may contribute to household material hardships in two ways. On the one hand, debt constrains economic resources and reduces a household’s ability to allocate money to additional areas of need. Spreading economic resources too thin can limit families’ economic stability or undermine their ability to weather economic shocks. In this case, we would expect that families with household debt, and families with a substantial debt burden specifically, would be more likely to experience material hardship compared to families without debt. On the other hand, debt may be a resource during times of intense need, as it may represent access to credit. Certain types of unsecured debt, such as credit cards, may allow families to smooth consumption to manage unexpected difficulties associated with financial shocks. If debt is used as a resource, we would expect that families with debt would not be more likely to experience material hardship compared to families without debt, as debt may smooth consumption to manage financial distress.

In this study, we pool two waves of data from the Fragile Families and Child Wellbeing Study to explore the associations of household debt with material hardship when children are 9 and 15-years old. We use mothers’ reports of unsecured household debt (e.g. credit cards, store cards, and loans) and experiences of material hardship in a number of domains (e.g. medical, bill-paying, utility shut-offs). After controlling for a comprehensive set of parent, child, and household characteristics, we find that higher levels of debt are associated with higher probability of reporting any material hardship. Specifically, mothers with high debt burden (debt-to-income ratio of 25% or more) have a 10 percentage point increase in the probability of experiencing any material hardship. These findings contribute to the growing body of literature on the effects of debt on family well-being and provide insight into potential alternative policy levers that may be considered to reduce material hardship and improve child and family health and well-being.

Authors

• Kasey Eickmeyer, Center for Policing Equity
  Non-Presenting Author

• Lenna Nepomnyaschy, Rutgers University - New Brunswick
  Presenting Author

• Daniel Miller, Boston University
  Non-Presenting Author

• Maureen Waller, Cornell University
  Non-Presenting Author