Non-Cognitive Abilities and Financial Delinquency: The Role of Self-Efficacy in Avoiding Financial Distress

48 Pages Posted: 1 Dec 2016 Last revised: 26 Apr 2018

See all articles by Camelia M. Kuhnen

Camelia M. Kuhnen

University of North Carolina Kenan-Flagler Business School & NBER

Brian Melzer

Federal Reserve Bank of Chicago

Multiple version iconThere are 2 versions of this paper

Date Written: December 31, 2017

Abstract

We investigate a novel determinant of financial distress, namely individuals' self-efficacy, or belief that their actions can influence the future. Individuals with high self-efficacy are more likely to take precautions that mitigate adverse financial shocks. They are subsequently less likely to default on their debt and bill payments, especially after experiencing negative shocks such as job loss or illness. Thus, non-cognitive abilities are an important determinant of financial fragility and subjective expectations are an important factor in household financial decisions.

Keywords: household finance, financial distress, self-efficacy, subjective expectations, non-cognitive skills

JEL Classification: D14, D84, D91, G02

Suggested Citation

Kuhnen, Camelia M. and Melzer, Brian, Non-Cognitive Abilities and Financial Delinquency: The Role of Self-Efficacy in Avoiding Financial Distress (December 31, 2017). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2877478 or http://dx.doi.org/10.2139/ssrn.2877478

Camelia M. Kuhnen (Contact Author)

University of North Carolina Kenan-Flagler Business School & NBER ( email )

Kenan-Flagler Business School
Chapel Hill, NC 27599-3490
United States
(919) 9623284 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/kuhnenc/

Brian Melzer

Federal Reserve Bank of Chicago ( email )

230 South LaSalle Street
Chicago, IL 60604
United States

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