Financial Literacy and Indebtedness: New Evidence for U.K. Consumers
39 Pages Posted: 27 May 2011
Date Written: April 2011
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: Suggested Citation