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Credit Card Debt Puzzles

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Author Info
Michael Halisassos () (School of Economics and Business, Goethe University Frankfurt)
Michael Reiter () (Dept. of Economics and Business, Universitat Pompeu Fabra)

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Abstract

Most US credit card holders revolve high-interest debt, often combined with substantial (i) asset accumulation by retirement, and (ii) low-rate liquid assets. Hyperbolic discounting can resolve only the former puzzle (Laibson et al., 2003). Bertaut and Haliassos (2002) proposed an ‘accountant-shopper’ framework for the latter. The current paper builds, solves, and simulates a fully-specified accountant-shopper model, to show that this framework can actually generate both types of co-existence, as well as target credit card utilization rates consistent with Gross and Souleles (2002). The benchmark model is compared to setups without self-control problems, with alternative mechanisms, and with impatient but fully rational shoppers.

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Publisher Info
Paper provided by Center for Financial Studies in its series CFS Working Paper Series with number 2005/26.

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Length: 58 pages
Date of creation: 09 Oct 2005
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Handle: RePEc:cfs:cfswop:wp200526

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Related research
Keywords: Credit Cards; Debt; Self Control; Household Portfolios;

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Find related papers by JEL classification:
E21 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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  1. Irina A. Telyukova & Randall Wright, 2007. "A model of money and credit, with application to the credit card debt puzzle," Working Paper 0711, Federal Reserve Bank of Cleveland. [Downloadable!]
    Other versions:
  2. Eugene Amromin & Jennifer Huang & Clemens Sialm, 2006. "The tradeoff between mortgage prepayments and tax-deferred retirement savings," Working Paper Series WP-06-05, Federal Reserve Bank of Chicago. [Downloadable!]
    Other versions:
  3. Telyukova, Irina A., 2009. "Household Need for Liquidity and the Credit Card Debt Puzzle," MPRA Paper 6674, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  4. Heski Bar-Isaac & Vicente Cuñat, 2005. "Long term debt with Hidden Borrowing," Working Papers 05-04, New York University, Leonard N. Stern School of Business, Department of Economics. [Downloadable!]
    Other versions:
  5. Jaime Ruiz-Tagle, 2006. "Financial Markets Incompleteness and Inequality Over the Life-Cycle," Working Papers Central Bank of Chile 405, Central Bank of Chile. [Downloadable!]
  6. Irina Grafova, 2007. "Your Money or Your Life: Managing Health, Managing Money," Journal of Family and Economic Issues, Springer, vol. 28(2), pages 285-303, June. [Downloadable!] (restricted)
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This page was last updated on 2009-11-11.

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