Essays on household finance

Abstract

This thesis consists of three essays on household finance. In the first chapter, we evaluate the impact of credit conditions on mental health. Using several empirical strategies, we discover that improving local banking conditions reduces mental depression among low-income households. Specifically, bank regulatory reforms that improved local credit conditions disproportionately boosted employment, income, job satisfaction, job promotion prospects, and mental health among low-income individuals living in counties where businesses depend heavily on bank credit. Using a different identification strategy that exploits bank M&As that tightened local credit conditions, we find consistent evidence: tightening credit conditions harmed the mental health of low-income individuals. The second chapter studies the impact of regulatory reforms that enhance credit market efficiency on children’s human capital. Using a parent-child panel dataset, we find that such reforms reduced children’s academic performance in low-income families. Consistent with the view that financial development entices low-income parents to substitute out of childrearing and into employment with adverse effects on children’s education, we find that among low-income families, regulatory reforms: increased mother’s employment hours, reduced parental supervision and parent-child discussions about school and college, and had bigger adverse effects when mothers were not already working full-time and grandparents were not living with the child. The third chapter explores what shapes human capital accumulation by revisiting the U.S. bank deregulation reform since the 1970s. Exploiting individuals’ heterogeneity in the timing of their exposure to finance during early childhood, we find that those with more thorough early-life exposure to finance gain more advantage in the labor market and wealth accumulation success. Meanwhile, they show higher levels of self-efficacy and self-esteem that help contribute to success in later life. As to the mechanisms, we find that families benefit from increasing financial liberalization and have more economic resources to provide a better childhood environment for children’s cognitive and emotional development.