The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households

Kim, Kyoung Tae, Lee, Jonghee, and Hanna, Sherman D. (2019). The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households. Journal of Consumer Affairs

36 Pages Posted: 1 Oct 2018 Last revised: 7 Oct 2019

See all articles by Kyoung Tae Kim

Kyoung Tae Kim

University of Alabama

Jonghee Lee

Keimyung University

Sherman D. Hanna

Ohio State University (OSU)

Date Written: September 24, 2019

Abstract

This study investigated the effect of objective and subjective financial literacy on mortgage payment delinquency using the 2015 National Financial Capability Study dataset. A hierarchical model showed a substantial negative effect of objective literacy on delinquency, but subjective literacy did not have a significant effect. The predicted likelihood of delinquency at the 10th percentile of objective literacy was over three times as high as the likelihood at the 90th percentile. In a model with combinations of high or low objective and subjective financial literacy, those who were overconfident had a delinquency likelihood three times as high as those who had high objective and subjective literacy. Subjective literacy had substantial effects on delinquency both for high and for low objective literacy levels. In financial education, attention should be focused not only on objective learning, but also making sure consumers are aware of the limitations of their understanding.

Keywords: Financial Knowledge; Financial Literacy; Mortgage Delinquency; National Financial Capability Study; Overconfidence

JEL Classification: D8; D12; D14; G2

Suggested Citation

Kim, Kyoung Tae and Lee, Jonghee and Hanna, Sherman D., The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households (September 24, 2019). Kim, Kyoung Tae, Lee, Jonghee, and Hanna, Sherman D. (2019). The Effects of Financial Literacy Overconfidence on the Mortgage Delinquency of US Households. Journal of Consumer Affairs . Available at SSRN: https://ssrn.com/abstract=3258115

Kyoung Tae Kim (Contact Author)

University of Alabama ( email )

312 Adams Hall
Tuscaloosa, AL 35487-0001
United States

Jonghee Lee

Keimyung University ( email )

Dalgubeol daero 1095
Daegu, 136-701
Korea, Republic of (South Korea)

Sherman D. Hanna

Ohio State University (OSU) ( email )

1787 Neil Avenue
Campbell 265D
Columbus, OH 43210
United States
614-292-4584 (Phone)

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