Győző GYÖNGYÖSI (Kiel Institute for the World Economy)
Financial distress and student performance
This paper studies the effect of household financial distress on students’ cognitive skill development. We use household foreign currency credit expansion with a large and unexpected depreciation of the domestic currency. The depreciation increased the debt burden of households borrowing in foreign currencies but not of households borrowing in the local currency. We measure household foreign currency debt exposure at the postal code level, and student achievement using administrative student level standardized test scores. Our empirical strategy compares the students’ cognitive skills attending the same class but living in different postal codes. Preliminary results show that a 10 percent unexpected local debt shock decreases the math and reading skills by .045 standard deviations. We also explore the channels through which the crisis affected student development.