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Growing up in a community with or without banks or financial institutions has a long-term effect on how you build and manage credit, according to a new Iowa State University study.
Early exposure to local banking increases financial literacy and trust, said James Brown, Kingland MBA professor and chair of finance in ISU's Ivy College of Business. The research shows individuals who grow up in what are essentially "financial deserts" are slow to apply for credit and as adults have lower credit scores and more delinquent accounts. The research is published in the Journal of Financial Economics.
Fact - Impact - People - Lot - Control
"The fact that this has a lingering impact is important, because people don't have a lot of control over where they grow up," Brown said. "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 it's not as easy to connect to a financial institution at a young age."
Brown and colleagues J. Anthony Cookson, University of Colorado Boulder; and Rawley Z. Heimer, Boston College, compared credit history data for individuals on Native American reservations with tribal courts to individuals on reservations under the jurisdiction of state courts. Brown says the differences in court enforcement—the result of a 1953 federal law—had an unintended effect on local financial markets.
Result - Court - Reservations - Percent - Bank
As a result, tribal court reservations had approximately 20 percent fewer bank branches per...
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