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Financial literacy and mortgage equity withdrawals

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  • Duca, John V.
  • Kumar, Anil

Abstract

Mortgage equity withdrawals (MEW) are correlated with covariates consistent with a permanent income framework augmented for credit-constraints. We assess linkages between MEW and financial literacy/education using the Health and Retirement Study (HRS) and Panel Study of Income Dynamics (PSID). We find that the financially literate are 3–5 percentage points less likely to withdraw housing equity via non-home equity loan mortgages using the HRS, while college graduates are 5 percentage points less likely than those without a high school degree in the PSID. Among those withdrawing housing equity in the PSID, college graduates extract significantly less equity and are less likely to have high levels of housing leverage after doing so.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 80 (2014)
Issue (Month): C ()
Pages: 62-75

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Handle: RePEc:eee:juecon:v:80:y:2014:i:c:p:62-75

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Mortgage equity withdrawals; Financial literacy; Consumption; Credit constraints;

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References

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Cited by:
  1. Elsa Fornero & Chiara Monticone & Serena Trucchi, 2011. "The effect of financial literacy on mortgage choices," CeRP Working Papers, Center for Research on Pensions and Welfare Policies, Turin (Italy) 121, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  2. Elsa Fornero & Maria Cristina Rossi & Maria Cesira Urzì Brancati, 2011. "Explaining why, right or wrong, (Italian) households do not like reverse mortgages," CeRP Working Papers, Center for Research on Pensions and Welfare Policies, Turin (Italy) 123, Center for Research on Pensions and Welfare Policies, Turin (Italy).
  3. Guglielmo Maria Caporale & Mauro Costantini & Antonio Paradiso, 2012. "Re-examining the Decline in the US Saving Rate: The Impact of Mortgage Equity Withdrawal," CESifo Working Paper Series, CESifo Group Munich 3897, CESifo Group Munich.
  4. Xu, Lisa & Zia, Bilal, 2012. "Financial literacy around the world : an overview of the evidence with practical suggestions for the way forward," Policy Research Working Paper Series, The World Bank 6107, The World Bank.
  5. Janet Currie & Erdal Tekin, 2011. "Is there a Link Between Foreclosure and Health?," NBER Working Papers 17310, National Bureau of Economic Research, Inc.
  6. Paradiso, Antonio & Casadio, Paolo & Rao, B. Bhaskara, 2012. "US inflation and consumption: A long-term perspective with a level shift," Economic Modelling, Elsevier, Elsevier, vol. 29(5), pages 1837-1849.
  7. Tyler Atkinson & David Luttrell & Harvey Rosenblum, 2013. "How bad was it? The costs and consequences of the 2007–09 financial crisis," Staff Papers, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, issue Jul.
  8. Thomas A. Garrett, 2011. "A Federal Reserve System conference on research in applied microeconomics," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 455-462.

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