The Protective Role of Financial Access: Examining Debt Collection Experiences Following Incarceration

Background. Individuals with incarceration experience face many challenges to re-integrate back into society and obtain financial well-being, including stigma in seeking employment, inability to obtain occupational licenses and collect welfare benefits. These challenges in the labor market, engagement with various government and community agencies, along with fees and fines associated with their court and jail involvement, often leave them in a precarious financial situation. Unmanageable debt and subsequent debt collection can result from their financial precariousness. Those with incarceration experience often accumulate higher levels of debt than the general U.S. population, which can lead to debt collection experiences, compounding their challenges of reentry into society. This study examines the relationship between incarceration experience and debt collection experience. Few studies have examined whether financial access, or the ownership of financial products and services, serves to buffer that relationship.

Method. This study used the 2022 Financial Health Pulse dataset from the Financial Health Network. Latent Class Analysis (LCA) was used to create classes of financial access, including bank accounts, retirement accounts, investments, credit cards, life/disability insurance, and home insurance. Separate binary logistic regression models were used with each of the classes to examine the whether the absence of incarceration experience reduces the risk of encountering debt collection, while controlling for sociodemographic characteristics. This step allows for examination of whether the effect of incarceration experience absence on debt collection risk is consistent or varies across classes. To address potential selection bias in the absence of incarceration and facilitate causal inference, this study applied propensity score weighting using the inverse probability approach.

Results. LCA resulted in the adoption of four classes (High Financial Access, Most Financial Access, Marginal Financial Access, and Minimal Financial Access). Logistic regression analysis resulted in the finding that the absence of incarceration experience reduces the risk of debt collection experience for three of the four groups. However, the absence of incarceration experience does not reduce the risk of debt collection experience for those in the Minimal Financial Access group, even when applying propensity score weighting.

Discussion. Results of this study suggest a relationship between incarceration experience and debt collection, and that financial access is a buffering factor for those with higher financial access. Alternatively, financial access is not a protective factor for those with the least financial access. For those without incarceration experience whose only mainstream financial product or service is a bank account, health savings account or certificate of deposit, their risk of experiencing debt collection is the same as individuals with incarceration experience. Thus, financial access serves to protect those with incarceration experience from debt collection, regardless of the value of these products. A focus during re-entry on gaining appropriate financial access is warranted. An emphasis on employment opportunities that provide employee benefits, such as retirement accounts and life/disability insurance, would serve to reduce the risk of debt collection.