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
Date Written: September 24, 2019
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: Suggested Citation