Abstract
Research on debt highlights its use as a tool for investment and a substitute for public welfare programs. Use of debt, however, is not equal across social groups. Black households in particular have lower debt levels than white households. In this paper, we explore the context behind massive racial disparities in household debt. Conceptually, we propose that personal debt is an indicator of integration in the financial system. As such, we argue that black households’ lower debt levels can be understood as financial isolation rather than financial health. We support this argument by using data from the Survey of Consumer Finances to estimate racial differences in access to financial tools net of racial differences in socioeconomic status, asset levels, and financial literacy. We also show that black households’ financial information networks are different from white households’ in ways that suggest restricted access to formal financial institutions.
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