Trust and Household Debt
Review of Finance, 2018, 22 (2), 783-812.
43 Pages Posted: 5 Nov 2011 Last revised: 22 May 2019
Date Written: July 30, 2016
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: Suggested Citation