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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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    2. Fong, Joelle H. & Koh, Benedict SK. & Mitchell, Olivia S. & Rohwedder, Susann, 2019. "Financial literacy and suboptimal financial decisions at older ages," CFS Working Paper Series 630, Center for Financial Studies (CFS).
    3. DELIS, Manthos & GALARIOTIS, Emilios & IOSIFIDI, Maria & MONNE, Jerome, 2023. "Poverty and seeking bank advice: Evidence from a survey experiment," Journal of Financial Stability, Elsevier, vol. 67(C).
    4. Fong, Joelle H. & Koh, Benedict S.K. & Mitchell, Olivia S. & Rohwedder, Susann, 2021. "Financial literacy and financial decision-making at older ages," Pacific-Basin Finance Journal, Elsevier, vol. 65(C).
    5. Paulo Pereira Silva & Victor Mendes, 2023. "Education and financial mistakes: The case of avoidable trading fees in stock markets," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(2), pages 173-202, May.
    6. Giné, Xavier & Mazer, Rafael Keenan, 2022. "Financial (dis-)information: Evidence from a multi-country audit study," Journal of Public Economics, Elsevier, vol. 208(C).
    7. Lin, Chaonan & Hsiao, Yu-Jen & Yeh, Cheng-Yung, 2017. "Financial literacy, financial advisors, and information sources on demand for life insurance," Pacific-Basin Finance Journal, Elsevier, vol. 43(C), pages 218-237.
    8. 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.
    9. 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.
    10. Delgado Fuentealba, Carlos L. & Muñoz Mendoza, Jorge A. & Sepúlveda Yelpo, Sandra M. & Veloso Ramos, Carmen L. & Fuentes-Solís, Rodrigo A., 2021. "Household debt, automatic bill payments and inattention: Theory and evidence," Journal of Economic Psychology, Elsevier, vol. 85(C).
    11. Behrooz Hashemian & Emanuele Massaro & Iva Bojic & Juan Murillo Arias & Stanislav Sobolevsky & Carlo Ratti, 2017. "Socioeconomic characterization of regions through the lens of individual financial transactions," PLOS ONE, Public Library of Science, vol. 12(11), pages 1-20, November.
    12. Yan Yuan & Toshiyuki Sueyoshi, 2017. "Effects of balance transfer offers on consumer short-term finance: evidence from credit card data," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 6(1), pages 1-30, December.
    13. Lingjing Wang & Cheng Qian & Philipp Kats & Constantine Kontokosta & Stanislav Sobolevsky, 2017. "Structure of 311 service requests as a signature of urban location," PLOS ONE, Public Library of Science, vol. 12(10), pages 1-21, October.
    14. Hongtao Xie & Junwei Zheng & Yunhua Zhang & Hongyang Li, 2019. "Effects of Payment Delays at Two Links in Payment Chains on the Progress of Construction Projects: System Dynamic Modeling and Simulation," Sustainability, MDPI, vol. 11(15), pages 1-25, July.
    15. Daniel Grodzicki & Alexei Alexandrov & Özlem Bedre-Defolie & Sergei Koulayev, 2023. "Consumer Demand for Credit Card Services," Journal of Financial Services Research, Springer;Western Finance Association, vol. 63(3), pages 273-311, June.

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    More about this item

    Keywords

    Credit cards; Financial mistakes; Penalty fees; Late fees; Over-limit fees; Cash advances;
    All these keywords.

    JEL classification:

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

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