Religiosity and financial distress of the young

Abstract

Financial distress is a prevalent issue among the youth. An influential stream of literature has argued that religion wields significant influence over human life. Using a representative sample of U.S. young people, we explore whether religiosity matters for financial distress. To deal with endogeneity issue, we exploit arguably exogeneous within-school variation in adolescents’ peers. By instrumenting an adolescent's own religiosity with the religiosity of their school peer group, we find that higher levels of religiosity causally and significantly reduce the likelihood of financial distress at young adulthood. Our results withstand a variety of robustness checks. To shed light on the mechanisms, we explore the impact of religiosity on an individual's sociability and various psychological attributes. We find that more religious individuals hold higher levels of self-control, a crucial attribute that aids in averting financial distress. Our study contributes to the literature by providing rigorous causal evidence that identifies religiosity as a meaningful predictor of reduced financial distress among young adults.