Study finds distant wildfire pollution increases household delinquencies
A new working paper estimates that exposure to distant wildfire-attributable air pollution significantly increases household credit card and personal loan delinquencies. The research, published by the Federal Reserve Bank of Philadelphia, highlights material effects on consumer financial health.
Distant smoke, rising delinquencies
The study finds statistically significant and economically salient increases in loan delinquencies following wildfire-attributable pollution events.
Higher levels of wildfire-related air pollution cause credit card and personal loan delinquencies to rise by 3-4 percentage points.
Analysis of confidential supervisory data reveals that among consumers exposed to high pollution, additional credit card spending combined with reduced repayment added about $1,000 per annum to credit card balances.
This increase in spending was associated with prime borrowers and those with high credit limits, who likely used funds for preventive measures.
Conversely, borrowers with low credit limits did not increase spending but repaid less, consistent with lower-income individuals having fewer resources to cope with health or labor market effects.
Health, income, and the burn zone
The research explores health and labor market mechanisms contributing to financial distress, documenting significant adverse effects on child and adult respiratory disease emergency department visits.
Borrowers exposed to higher pollution levels also experienced declines in earnings and employment.
The paper contrasts these findings with direct burn zone impacts, which also show near-term increases in mortgage, credit card, and personal loan delinquencies.
Interestingly, in burn zones, homeowners often paid down credit card debt, likely using insurance payouts, while renters experienced distress due to limited resources and lack of insurance coverage for smoke effects, which are typically not covered by insurance.
Invisible threat, tangible impact
This study provides crucial, granular evidence on the far-reaching financial consequences of wildfires beyond immediate burn zones.
It highlights a previously underestimated vulnerability for substantial dispersed populations, underscoring the need for broader policy considerations.
However, the reliance on credit data for health spending inferences could benefit from direct medical cost data for a more complete picture.