From Bad to Worse: Natural Disasters and Financial Health

Abstract

Many families live on the financial edge, but a natural disaster can throw even better-situated families into financial turmoil. Comparing the financial outcomes of residents in areas hit by natural disasters with otherwise similar people in unaffected communities, this study finds that natural disasters lead to declines in credit scores and mortgage performance, increases in debt in collection, and impacts on credit card access and debt-effects that persist or even worsen over time. We also find that people who are more likely to be struggling financially before disasters strike are often the hardest hit by the disaster. Specifically, for people with low pre-disaster credit scores, as well as those who live in a community of color, the estimated declines in credit scores are particularly substantial. We find a similar pattern for mortgage delinquency and foreclosure. This pattern of results suggests that disasters may be not only harmful for affected residents on average, but may also have the effect of widening already existing inequalities. Our results also suggest that medium-sized disasters, which are less likely to receive long-term public recovery funding, lead to larger negative declines on credit scores than large disasters.

Flood Recovery Outcomes and Disaster Assistance Barriers for Vulnerable Populations

“…Findings vary on post-flood financial outcomes for minority populations, driven in part by differences in study design that affect how recovery progress is tracked relative to factors like pre-existing financial health. Ratcliffe et al (2019) found larger reductions in credit scores in minority communities, but no significant differences among other financial outcomes. Deryugina et al (2018) and Groen et al (2020) found longterm gains in post-disaster employment and income across all racial and ethnic categories.…”

“…Edmiston (2017) found large hurricane related reductions in credit scores were almost double for financially vulnerable households. Finally, both Billings et al (2019) and Ratcliffe et al (2019) showed that negative financial impacts (credit scores, debt collections and delinquencies, bankruptcy) persisted or grew over time for households under existing financial strain.…”

“…Headlines like "How Federal Disaster Money Favors the Rich" (Hersher and Benincasa, 2020) and "How Disaster Aid Favors White People" (Flavelle, 2021) reflect growing attention to unequal benefits of disaster recovery spending, particularly for socially vulnerable populations. Recent academic research has found US disaster spending may reinforce inequities (Elliott et al, 2020;Emrich et al, 2020) or even widen existing inequality (Howell and Elliott, 2019;Ratcliffe et al, 2019). The premises underlying these conclusions are two-fold.…”

Can Parametric Microinsurance Improve the Financial Resilience of Low-Income Households in the United States?

“…Aggregate loss statistics or examination of macroeconomic indicators can mask this reality (e.g., Kim 2012;Hallegatte et al 2017;Sawada and Takasaki 2017). Follow-on economic impacts, such as declines in credit scores, are not only more severe in low-income communities and communities of color, but can persist for years (Ratcliffe et al 2019). Without financial safety nets, disasters can become tipping points into deeper poverty, as families and individuals default on loans, accumulate debt, exhaust small savings for other purposes like education, or even lose ownership of their homes (e.g., Fothergill and Peek 2004;Pastor et al 2006).…”

Features of Evolved Adaptive Responses (FEAR): an evolutionary-developmental model of psychological trauma and common psychological conditions

“…Moreover, the more government aid a region receives post-disaster, the more wealth inequality becomes polarised. [596][597][598][599] Figure: Global population affected by all natural disasters 1900-2019 595 Figure: Global damage costs from all natural disasters 1980-2019 595 The phenomenon of modern megafires represents a key example of ecological feedback associated with human manipulation of ecosystems. Fire is a fundamental process in Earth's systems connecting ecosystems, biogeochemical cycles and climate and a primary driver of species biodiversity.…”