Financial Literacy: A Barrier to Home Ownership for the Young?

40 Pages Posted: 11 Sep 2015 Last revised: 8 May 2017

See all articles by John Gathergood

John Gathergood

University of Nottingham - School of Economics

Joerg Weber

University of Nottingham - School of Economics; University of Nottingham - Centre for Decision Research and Experimental Economics

Date Written: February 2017

Abstract

The decision to buy a home is one of the most important choices faced by a household. Most young households who purchase a home do so using a mortgage. But mortgages are complex financial instruments and this complexity may be a barrier to less sophisticated households becoming homeowners. Using survey data from a sample of English and Welsh households we measure household financial literacy related to mortgages, including concepts such as loan duration, interest compounding and amortization. We find that in the population mortgage financial literacy is generally low and among renters mortgage financial literacy is substantially worse than among homeowners. Econometric estimates show mortgage financial literacy predicts home ownership for younger, but not for older households. Financial literacy also affects the type of mortgage and leverage position of younger households. Young homeowners with poorer financial literacy take on larger mortgage debts and are more likely to use alternative mortgage products.

Keywords: Home ownership; Financial literacy; Mortgages; Household finance

JEL Classification: D10; D12; G21

Suggested Citation

Gathergood, John and Weber, Joerg, Financial Literacy: A Barrier to Home Ownership for the Young? (February 2017). Journal of Urban Economics, Vol. 99, May 2017, pp. 62-78, doi.org/10.1016/j.jue.2017.02.001. Available at SSRN: https://ssrn.com/abstract=2659264 or http://dx.doi.org/10.2139/ssrn.2659264

John Gathergood (Contact Author)

University of Nottingham - School of Economics ( email )

Sir Clive Granger Building
University Park
Nottingham, NG7 2RD
United Kingdom

HOME PAGE: http://https://sites.google.com/site/gathergoodjohn/

Joerg Weber

University of Nottingham - School of Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom
+44 (0)115 95 15870 (Phone)

University of Nottingham - Centre for Decision Research and Experimental Economics ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

Register to save articles to
your library

Register

Paper statistics

Downloads
112
Abstract Views
487
rank
241,783
PlumX Metrics