The Importance of Financial Experience for First-Time Homeowners

50 Pages Posted: 5 Dec 2019

See all articles by Taylor A. Begley

Taylor A. Begley

Washington University in St. Louis - John M. Olin Business School

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School

Naser Hamdi

Equifax, Inc.

Rodrigo Moser

Washington University in St. Louis - John M. Olin Business School

Date Written: November 19, 2019

Abstract

We use individual-level data to quantify the effect of getting a mortgage on non-mortgage credit outcomes. We use a regression discontinuity design and find that individuals that transition to homeownership increase their credit card and auto balances by $8,300 and $14,800, suggesting a debt spillover effect from home ownership. This increase in debt is equivalent to 13% of the average mortgage loan, and we provide evidence that it is mainly driven by a change in credit demand. We find that this increase in debt is driven by individuals with higher financial experience, while their overall ability to service their debt remains unchanged. In contrast, low-experience individuals do not increase their debt, but are relatively more likely to experience a deterioration in their financial health. Taken together, these results highlight the role financial experience plays in managing the debt burden associated to a new home.

Keywords: Household Debt, Mortgage, Financial Experience

JEL Classification: D12, D14, R21, R23

Suggested Citation

Begley, Taylor A. and Gopalan, Radhakrishnan and Hamdi, Naser and Moser, Rodrigo, The Importance of Financial Experience for First-Time Homeowners (November 19, 2019). Available at SSRN: https://ssrn.com/abstract=3490247 or http://dx.doi.org/10.2139/ssrn.3490247

Taylor A. Begley

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

HOME PAGE: http://www.taylorbegley.com

Radhakrishnan Gopalan

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

Naser Hamdi

Equifax, Inc. ( email )

Atlanta, GA
United States

Rodrigo Moser (Contact Author)

Washington University in St. Louis - John M. Olin Business School ( email )

One Brookings Drive
Campus Box 1133
St. Louis, MO 63130-4899
United States

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