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The impact of wealth on financial mistakes: Evidence from credit card non-payment

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  • Scholnick, Barry
  • Massoud, Nadia
  • Saunders, Anthony

Abstract

Recent research finds that poorer individuals make financial mistakes when the decisions are difficult and rare. We examine who makes financial mistakes involving decisions that are easier and more frequent – specifically, the inadvertent failure to pay monthly credit card balances when sufficient funds are available. On the one hand poorer individuals may make such mistakes because of lower levels of financial literacy. Alternatively, richer individuals may make such mistakes because of the relatively lower costs to them of such mistakes. We examine this question using confidential individual credit card statement data, with over a million data points. Our results show that poorer individuals are more likely to make these mistakes, even after controlling for education.

Suggested Citation

  • Scholnick, Barry & Massoud, Nadia & Saunders, Anthony, 2013. "The impact of wealth on financial mistakes: Evidence from credit card non-payment," Journal of Financial Stability, Elsevier, vol. 9(1), pages 26-37.
  • Handle: RePEc:eee:finsta:v:9:y:2013:i:1:p:26-37
    DOI: 10.1016/j.jfs.2012.11.005
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    1. repec:taf:oaefxx:v:3:y:2015:i:1:p:1057923 is not listed on IDEAS
    2. repec:eee:pacfin:v:43:y:2017:i:c:p:218-237 is not listed on IDEAS
    3. Shen, Chung-Hua & Lin, Shih-Jie & Tang, De-Piao & Hsiao, Yu-Jen, 2016. "The relationship between financial disputes and financial literacy," Pacific-Basin Finance Journal, Elsevier, vol. 36(C), pages 46-65.
    4. Gine, Xavier & Martinez Cuellar, Cristina & Mazer, Rafael Keenan, 2014. "Financial (dis-)information : evidence from an audit study in Mexico," Policy Research Working Paper Series 6902, The World Bank.

    More about this item

    Keywords

    Credit cards; Financial mistakes; Penalty fees; Late fees; Over-limit fees; Cash advances;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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