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Self-Control, Financial Literacy and Consumer Over-Indebtedness

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  • John Gathergood

Abstract

This paper examines the relationship between self-control, financial literacy and over-indebtedness on consumer credit debt among UK consumer. Lack of selfcontrol and financial illiteracy are positively associated with non-payment of consumer credit and self-reported excessive financial burdens of debt. Consumers who exhibit self-control problems are shown to make greater use of quick-access but high cost credit items such as store cards and payday loans. We also find consumers with self-control problems are more likely to suffer income shocks, credit withdrawals and unforeseen expenses on durables, suggesting that lack of self-control increases exposure to a variety of risks. In most specifications we find a stronger role for lack of self-control than for financial illiteracy in explaining consumer over-indebtedness. We discuss the policy implications of these findings.

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Paper provided by University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM) in its series Discussion Papers with number 12/02.

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Handle: RePEc:not:notcfc:12/02

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Keywords: Self-control; Financial literacy; Consumer debt;

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Cited by:
  1. Murizah Osman Salleh & Aziz Jaafar & M. Shahid Ebrahim, 2012. "Can an interest-free credit facility be more efficient than a usurious payday loan?," Working Papers 12008, Bangor Business School, Prifysgol Bangor University (Cymru / Wales).
  2. Brown, Martin & Graf, Roman, 2012. "Financial Literacy, Household Investment and Household Debt: Evidence from Switzerland," Working Papers on Finance 1301, University of St. Gallen, School of Finance.
  3. Vanessa Mak & Jurgen Braspenning, 2012. "Errare humanum est: Financial Literacy in European Consumer Credit Law," Journal of Consumer Policy, Springer, vol. 35(3), pages 307-332, September.
  4. Elisabeth Beckmann & Helmut Stix, 2014. "Foreign currency borrowing and knowledge about exchange rate risk," Working Papers 188, Oesterreichische Nationalbank (Austrian Central Bank).
  5. John Gathergood & Joerg Weber, 2012. "Self-Control, Financial Literacy and Co-Holding Puzzle," Discussion Papers 2012-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  6. Elisabete Santos & Margarida Abreu, 2013. "Financial Literacy, Financial Behaviour and Individuals’ Over-indebtedness," Working Papers Department of Economics 2013/11, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  7. Schicks, Jessica, 2014. "Over-Indebtedness in Microfinance – An Empirical Analysis of Related Factors on the Borrower Level," World Development, Elsevier, vol. 54(C), pages 301-324.
  8. Luke Wood, J. & Essien-Wood, Idara, 2012. "Capital identity projection: Understanding the psychosocial effects of capitalism on Black male community college students," Journal of Economic Psychology, Elsevier, vol. 33(5), pages 984-995.

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