Living in a financial desert can be bad for credit score, financial success

Living in a financial desert can be bad for leistungspunkt score, financial successLiving in a financial desert can be bad for credit score, financial successYour financial health is partially a result of whether or not you grew up in proximity to banking or other financial institutions, according to a new study from Iowa State University.Those who were exposed to banks at earlier ages have increased financial literacy and trust of the institution. However, people who grew up in financial deserts swaths of neighborhoods without banks hesitate to get credit, resulting in lower credit scores and more delinquent accounts.Follow Ladders on FlipboardFollow Ladders magazines on Flipboard covering Happiness, Productivity, Job Satisfaction, Neuroscience, and moreThe study will be published in the Journal of Financial Economics.The fact that this has a lingering impact is important because people dont have a lot of control over where they grow up, said researcher James Brown, Kingland MBA p rofessor, in a release. I remember growing up right across the street from a bank and going with my dad to open my first account. But a lot of people grow up in an environment where banks are not visible and its not as easy to connect to a financial institution at a young age.The researchers obtained their data by studying people on Native American reservations with tribal courts, comparing them to people on Native American reservations with state courts. Reservations with tribal courts had 20% fewer bank branches per capita in the 2000s.FindingsFor those who grew up with fewer financial institutionsThey are 20% less likely to have a credit reportThey have 7 to 10-point lower credit scoreThey have 2 to 4 percent higher delinquency ratesThe effect on their credit scores is similar to the effect of reducing annual income by $6,000Moving to a community with stronger financial markets does improve individuals situations. However, researchers estimated, it still takes about 17 years to g et their credit score back on track and 12 years to reduce delinquency rates.Exposure and trust go together, said Brown. If you grow up in an environment with more banks, youre more inclined to trust banks and the financial system. If you grow up in a financial services desert, youre much less likely to trust financial institutions, which may be one reason you dont engage or you dont pay back your credit card bills with the same frequency.Relatedly, The New York Times reported on financial deserts in 2017, writing that the Bronx has fewer bank branches than any borough except for Staten Island.That same year, the Wall Street Journal reported on the closure of black-owned banks across the country. On the South Side of Chicago, a resident told the paper that fewer small banks in her neighborhood meant that it would turn into a financial desert, with only predatory institutions available for banking, like payday lenders and check-cashing joints.You might also enjoyNew neuroscience reve als 4 rituals that will make you happyStrangers know your social class in the first seven words you say, study finds10 lessons from Benjamin Franklins daily schedule that will double your productivityThe worst mistakes you can make in an interview, according to 12 CEOs10 habits of mentally strong people