How Does Financial Literacy Affect Mortgage Default?

48 Pages Posted: 2 May 2015 Last revised: 25 Jan 2017

Sumit Agarwal

National University of Singapore

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC)

Yunqi Zhang

School of Finance, Nankai University; National University of Singapore

Multiple version iconThere are 2 versions of this paper

Date Written: April 30, 2015

Abstract

This paper uses a dataset from one of the leading subprime lenders in America, containing detailed information on borrower and loan characteristics, finds that borrowers from the financial industry, who have higher financial literacy, are less likely to default. This effect cannot be explained by borrower characteristics such as income and education, loan terms, property characteristics, or geographic effects. We also find there are variations in this effect of financial literacy for different types of borrowers or different kinds of loans. Our results indicate that financial literacy plays an important part in repayment behavior and have helpful policy implications.

Keywords: financial literacy, mortgages, financial crisis, household finance

JEL Classification: D10, R20, G01, G21

Suggested Citation

Agarwal, Sumit and Chomsisengphet, Souphala and Zhang, Yunqi, How Does Financial Literacy Affect Mortgage Default? (April 30, 2015). Available at SSRN: https://ssrn.com/abstract=2601025 or http://dx.doi.org/10.2139/ssrn.2601025

Sumit Agarwal

National University of Singapore ( email )

15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)

HOME PAGE: http://www.ushakrisna.com

Souphala Chomsisengphet

Office of the Comptroller of the Currency (OCC) ( email )

400 7th Street, SW
Washington, DC 20219
United States
202-649-5533 (Phone)

Yunqi Zhang (Contact Author)

School of Finance, Nankai University ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

National University of Singapore ( email )

4 Architecture Drive
Singapore, 117566
Singapore

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