The Effect of Self-Control and Financial Literacy on Impulse Borrowing: Experimental Evidence

83 Pages Posted: 15 Jun 2021

See all articles by Antonia Grohmann

Antonia Grohmann

Aarhus University

Jana Hamdan

German Institute for Economic Research (DIW Berlin), Students

Date Written: May 2021

Abstract

This paper examines the effect of reduced self-control on impulsive borrowing in a laboratory experiment. We manipulate self-control using an ego depletion task and show that it is effective. Following the ego depletion task, participants can anonymously buy hot drinks on credit. We find no significant average effects, but find that treated individuals that have low financial literacy are more likely to borrow impulsively. We complement our experimental analysis with survey evidence that suggests that people with low self-control have more problems with the repayment of consumer debt. This relationship is, in line with the experimental results, weaker for individuals with high financial literacy.

Keywords: Debt, consumption, borrowing, self-control, ego depletion

JEL Classification: D14,G51,C91

Suggested Citation

Grohmann, Antonia and Hamdan, Jana, The Effect of Self-Control and Financial Literacy on Impulse Borrowing: Experimental Evidence (May 2021). DIW Berlin Discussion Paper No. 1950, Available at SSRN: https://ssrn.com/abstract=3864924 or http://dx.doi.org/10.2139/ssrn.3864924

Antonia Grohmann

Aarhus University ( email )

Nordre Ringgade 1
DK-8000 Aarhus C, 8000
Denmark

Jana Hamdan (Contact Author)

German Institute for Economic Research (DIW Berlin), Students ( email )

Germany

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