Were Consumer Mistakes Related to Changes in Financial Obligations Burdens?

Consumer Interests Annual, Vol. 58, 2012

7 Pages Posted: 20 Nov 2012

See all articles by Sherman D. Hanna

Sherman D. Hanna

Ohio State University (OSU)

Yoonkyung Yuh

Ewha Womans University

Swarn Chatterjee

University of Georgia

Date Written: April 18, 2012

Abstract

The purpose of this paper is to examine whether the increase in the proportion of U.S. households with financial obligations greater than 40% of income was due to mistakes or over-optimism. The proportion of households paying more than 40% of income for debt, rent, vehicle leases, property taxes, and homeowners insurance, which we refer to as having a heavy burden, increased from 17% in 1992 to 26% in 2007. Multivariate analyses performed for renters and for homeowners indicate that even controlling for other factors, the proportions with high burdens for renters and for homeowners were much higher in 2007 than in 1992. Education was positively related to having a heavy burden, suggesting that having a heavy burden is not simply a cognitive error. The general optimism by both households and lenders during most of the period from 1992 to 2007, possibly combined with relaxed regulations, may have led to the substantial increases in the proportions of households having high burdens.

Keywords: borrowing decisions, household debt, financial obligations, education, expectations

JEL Classification: C250, D120, G210, G330

Suggested Citation

Hanna, Sherman D. and Yuh, Yoonkyung and Chatterjee, Swarn, Were Consumer Mistakes Related to Changes in Financial Obligations Burdens? (April 18, 2012). Consumer Interests Annual, Vol. 58, 2012. Available at SSRN: https://ssrn.com/abstract=2177531

Sherman D. Hanna (Contact Author)

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

Yoonkyung Yuh

Ewha Womans University ( email )

Shinsegae Building Rm 425
11-1 Daehyun-dong, Seodaemun-gu
Seoul 120-750
Korea
82-2-3277-4076 (Phone)
82-2-3277-2835 (Fax)

Swarn Chatterjee

University of Georgia ( email )

Athens, GA 30602-3622
United States

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