Think Twice or Be Wise in Consumer Credit Choices

53 Pages Posted: 14 Jun 2013 Last revised: 22 May 2019

See all articles by Christian David Dick

Christian David Dick

ZEW – Leibniz Centre for European Economic Research

Lena Jaroszek

Copenhagen Business School - Department of Finance

Date Written: May 20, 2019

Abstract

We analyze what drives consumers to use relatively expensive short-term credit. We find heterogeneity in the susceptibility to short-term credit use. Specifically, we find that consumers with low financial literacy and consumers who do not think twice about their decisions use overdraft credit more frequently. Our empirical analysis draws on rich household survey data from Germany, where 80% of the population has access to overdraft credit. We confirm our results when controlling for borrowing constraints, and for omitted variables through an IV approach. Our evidence on borrower characteristics can help to inform evaluations of existing policies and targeting new policies.

Keywords: Household finance, cognitive reflection, financial literacy, expert intuition

JEL Classification: D12, D14

Suggested Citation

Dick, Christian David and Jaroszek, Lena, Think Twice or Be Wise in Consumer Credit Choices (May 20, 2019). Available at SSRN: https://ssrn.com/abstract=2278835 or http://dx.doi.org/10.2139/ssrn.2278835

Christian David Dick

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Lena Jaroszek (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

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