Trust and Household Debt

Review of Finance, 2018, 22 (2), 783-812.

43 Pages Posted: 5 Nov 2011 Last revised: 22 May 2019

See all articles by Danling Jiang

Danling Jiang

College of Business, Stony Brook University

Sonya S. Lim

DePaul University - Department of Finance

Date Written: July 30, 2016

Abstract

Using a large sample of U.S. individuals, we show that individuals with higher levels of trust have lower likelihoods of default in household debt and higher net worth. The effect is driven by trust values inherited from cultural and family backgrounds more than by trust beliefs about others. We demonstrate a causal impact of trust on financial outcomes by extracting the component of trust correlated with early-life experiences. The effect of trust is more pronounced among females, those with lower education, lower income, lower financial literacy, and higher debt-to-income ratio. Further evidence suggests that enhancing individuals' trust, to the right amount, can improve household financial well-being.

Keywords: Trust, Trustworthiness, Household Debt, Culture, Early-Life Experiences

JEL Classification: B21, D12, G02, H31, P46

Suggested Citation

Jiang, Danling and Lim, Sonya S., Trust and Household Debt (July 30, 2016). Review of Finance, 2018, 22 (2), 783-812., Available at SSRN: https://ssrn.com/abstract=1954790 or http://dx.doi.org/10.2139/ssrn.1954790

Danling Jiang

College of Business, Stony Brook University ( email )

306 Harriman Hall
Stony Brook, NY 11794
United States

HOME PAGE: http://sites.google.com/site/danlingjiang

Sonya S. Lim (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States

HOME PAGE: http://sites.google.com/site/sonyalim/

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