Self-Control, Financial Literacy & the Co-Holding Puzzle

29 Pages Posted: 14 Feb 2012 Last revised: 8 May 2017

See all articles by John Gathergood

John Gathergood

University of Nottingham - School of Economics

Joerg Weber

University of Nottingham - School of Economics; University of Nottingham - Centre for Decision Research and Experimental Economics

Date Written: March 1, 2014

Abstract

We use UK survey data to analyze the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we name the ‘co-holding puzzle’. Approximately 12% of households in our sample co-hold, on average, £3800 of revolving consumer credit on which they incur interest charges, even though they could immediately pay down all this debt using their liquid assets. Co-holders are typically more financially literate, with above average income and education. In most estimates co-holding is also associated with impulsive spending behavior on the part of the household. Our results provide empirical support to theoretical models in which households co-hold as a means of managing self-control problems.

Keywords: Consumer credit; Self-control; Financial literacy

JEL Classification: D03; D10; D12; E21

Suggested Citation

Gathergood, John and Weber, Joerg, Self-Control, Financial Literacy & the Co-Holding Puzzle (March 1, 2014). Journal of Economic Behavior and Organization, Vol. 107, No. Part B, 2014. Available at SSRN: https://ssrn.com/abstract=2005031 or http://dx.doi.org/10.2139/ssrn.2005031

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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

Joerg Weber

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 (0)115 95 15870 (Phone)

University of Nottingham - Centre for Decision Research and Experimental Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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