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Financial literacy and mortgage stress

Author

Listed:
  • Hu, Mingzhi
  • Lin, Zhenguo
  • Liu, Yingchun

Abstract

This paper examines the effect of financial literacy on mortgage stress. Using data from the Panel Study of Income Dynamics (PSID), we find that borrowers with high levels of financial literacy are over 60 percent less likely to suffer from mortgage stress than borrowers with low levels of financial literacy after controlling for observables. Our findings remain robust to various potential issues, including sample selection bias and functional misspecifications. Moreover, we find that the effect of financial literacy varies across different age groups of borrowers. Further analysis reveals strong cross effects of financial literacy and quantitative reasoning on mortgage stress.

Suggested Citation

  • Hu, Mingzhi & Lin, Zhenguo & Liu, Yingchun, 2024. "Financial literacy and mortgage stress," Journal of Banking & Finance, Elsevier, vol. 163(C).
    • Handle: RePEc:eee:jbfina:v:163:y:2024:i:c:s0378426624000876
    DOI: 10.1016/j.jbankfin.2024.107170
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    More about this item

    Keywords

    Financial literacy; Mortgage stress; Financial industry; Household finance;
    All these keywords.

    JEL classification:

    • D10 - Microeconomics - - Household Behavior - - - General
    • R20 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - General
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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