How Does Financial Literacy Affect Mortgage Default?
48 Pages Posted: 2 May 2015 Last revised: 25 Jan 2017
Date Written: April 30, 2015
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: Suggested Citation