Financial Literacy and Indebtedness: New Evidence for U.K. Consumers

39 Pages Posted: 27 May 2011

See all articles by John Gathergood

John Gathergood

University of Nottingham - School of Economics

Richard F. Disney

University of Nottingham; Institute for Fiscal Studies (IFS); Axia Economics

Date Written: April 2011

Abstract

We utilise questions concerning individual ‘debt literacy’ incorporated into market research data on households’ unsecured debt positions to examine the association between consumer credit and individual financial literacy. We examine the relationship between individual responses to debt literacy questions and household net worth, consumer credit use and over-indebtedness. We find that financially illiterate households have lower net worth, use higher cost credit and are more likely to report credit arrears or difficulty paying their debts. However, financially literate households are more likely to co-hold liquid savings and revolving consumer credit, suggesting that the co-holding might arise as a result of rational financial behaviour. We consider the potential endogeneity of financial literacy.

Keywords: financial literacy, consumer credit, financial education

JEL Classification: D03, D12, E21

Suggested Citation

Gathergood, John and Disney, Richard F., Financial Literacy and Indebtedness: New Evidence for U.K. Consumers (April 2011). Available at SSRN: https://ssrn.com/abstract=1851343 or http://dx.doi.org/10.2139/ssrn.1851343

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

Richard F. Disney

University of Nottingham ( email )

School of Economics
Nottingham NG7 2RD
United Kingdom
+44 115 951 5620 (Phone)
+44 115 951 4159 (Fax)

Institute for Fiscal Studies (IFS)

7 Ridgmount Street
London, WC1E 7AE
United Kingdom

Axia Economics ( email )

38 Concanon Road
London SW2 5TA
United Kingdom

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