Managing Debt and Managing Each Other: The Interpersonal Dynamics of Joint Financial Decisions
50 Pages Posted: 31 Jul 2015 Last revised: 20 May 2018
Date Written: May 18, 2018
How do couples manage their debts? Prior work suggests that couple members’ differences in objective financial literacy do not predict who initially has greater influence over household finances. By contrast, we propose that couple members’ differences in subjective financial confidence predict influence over joint debt management decisions. In an incentivized debt management task, we found that following the lead of the partner with greater financial confidence is beneficial. In fact, couple members manage debt more optimally when working together than when working individually. Financial confidence encourages financially optimal behavior among those faced with multiple debts (by focusing repayment efforts on large, otherwise daunting debts). Couples benefit from a shared understanding of which partner has greater financial confidence and placing greater weight on that partner’s preferences. Consistent with this account, we find that a shared financial “warm up” task can improve partners’ understanding of each other’s financial confidence, which in turn improves their ability to jointly manage debts. Our work highlights the interpersonal (and beneficial) role of financial confidence in joint financial decisions.
Keywords: consumer financial decision-making, debt management, confidence, joint decision-making
JEL Classification: M31, D10, C91, C92
Suggested Citation: Suggested Citation