IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v37y2013i7p2246-2254.html
   My bibliography  Save this article

Financial literacy and consumer credit portfolios

Author

Listed:
  • Disney, Richard
  • Gathergood, John

Abstract

We use survey data from a sample of UK households to analyse the relationship between financial literacy and consumer credit portfolios. We show that individuals who borrow on consumer credit exhibit worse financial literacy than those who do not. Borrowers with poor financial literacy hold higher shares of high cost credit (such as home collected credit, mail order catalogue debt and payday loans) than those with higher literacy. We also show that individuals with poor financial literacy are more likely to lack confidence when interpreting credit terms, and to exhibit confusion over financial concepts. They are also less likely to engage in behaviour which might help them to improve their awareness of the credit market.

Suggested Citation

  • Disney, Richard & Gathergood, John, 2013. "Financial literacy and consumer credit portfolios," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2246-2254.
  • Handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2246-2254
    DOI: 10.1016/j.jbankfin.2013.01.013
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378426613000381
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.jbankfin.2013.01.013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. van Rooij, Maarten & Lusardi, Annamaria & Alessie, Rob, 2011. "Financial literacy and stock market participation," Journal of Financial Economics, Elsevier, vol. 101(2), pages 449-472, August.
    2. Annamaria Lusardi, 2008. "Financial Literacy: An Essential Tool for Informed Consumer Choice?," NFI Working Papers 2008-WP-13, Indiana State University, Scott College of Business, Networks Financial Institute.
    3. John Y. Campbell, 2006. "Household Finance," Journal of Finance, American Finance Association, vol. 61(4), pages 1553-1604, August.
    4. Lusardi, Annamaria & Tufano, Peter, 2015. "Debt literacy, financial experiences, and overindebtedness," Journal of Pension Economics and Finance, Cambridge University Press, vol. 14(4), pages 332-368, October.
    5. Tullio Jappelli, 2010. "Economic Literacy: An International Comparison," Economic Journal, Royal Economic Society, vol. 120(548), pages 429-451, November.
    6. Lusardi, Annamaria & Mitchell, Olivia S., 2007. "Baby Boomer retirement security: The roles of planning, financial literacy, and housing wealth," Journal of Monetary Economics, Elsevier, vol. 54(1), pages 205-224, January.
    7. Lauren E. Willis, 2011. "The Financial Education Fallacy," American Economic Review, American Economic Association, vol. 101(3), pages 429-434, May.
    8. Sumit Agarwal & John C. Driscoll & Xavier Gabaix & David Laibson, 2009. "The Age of Reason: Financial Decisions over the Life Cycle and Implications for Regulation," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 40(2 (Fall)), pages 51-117.
    9. Stephan Meier & Charles Sprenger, 2010. "Present-Biased Preferences and Credit Card Borrowing," American Economic Journal: Applied Economics, American Economic Association, vol. 2(1), pages 193-210, January.
    10. Victor Stango & Jonathan Zinman, 2011. "Fuzzy Math, Disclosure Regulation, and Market Outcomes: Evidence from Truth-in-Lending Reform," Review of Financial Studies, Society for Financial Studies, vol. 24(2), pages 506-534.
    11. Jappelli, Tullio & Padula, Mario, 2013. "Investment in financial literacy and saving decisions," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2779-2792.
    12. van Rooij, Maarten C.J. & Lusardi, Annamaria & Alessie, Rob J.M., 2011. "Financial literacy and retirement planning in the Netherlands," Journal of Economic Psychology, Elsevier, vol. 32(4), pages 593-608, August.
    13. Xavier Gabaix & David Laibson, 2018. "Shrouded attributes, consumer myopia and information suppression in competitive markets," Chapters, in: Victor J. Tremblay & Elizabeth Schroeder & Carol Horton Tremblay (ed.), Handbook of Behavioral Industrial Organization, chapter 3, pages 40-74, Edward Elgar Publishing.
    14. James Banks & Cormac O'Dea & Zoë Oldfield, 2010. "Cognitive Function, Numeracy and Retirement Saving Trajectories," Economic Journal, Royal Economic Society, vol. 120(548), pages 381-410, November.
    15. Agarwal, Sumit & Chomsisengphet, Souphala & Liu, Chunlin & Souleles, Nicholas S., 2005. "Do consumers choose the right credit contracts?," CFS Working Paper Series 2005/32, Center for Financial Studies (CFS).
    16. Luigi Guiso & Tullio Jappelli, 2008. "Financial Literacy and Portfolio Diversification," EIEF Working Papers Series 0812, Einaudi Institute for Economics and Finance (EIEF), revised Oct 2008.
    17. Angela Hung & Andrew Parker & Joanne K. Yoong, 2009. "Defining and Measuring Financial Literacy," Working Papers 708, RAND Corporation.
    18. Angela A. Hung & Andrew M. Parker & Joanne K. Yoong, 2009. "Defining and Measuring Financial Literacy," Working Papers WR-708, RAND Corporation.
    19. Laibson, David I. & Agarwal, Sumit & Driscoll, John C. & Gabaix, Xavier, 2009. "The Age of Reason: Financial Decisions over the Life-Cycle with Implications for Regulation," Scholarly Articles 4554335, Harvard University Department of Economics.
    20. Haliassos, Michael & Bertaut, Carol C, 1995. "Why Do So Few Hold Stocks?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1110-1129, September.
    21. Peter Tufano, 2009. "Consumer Finance," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 227-247, November.
    22. Carin van der Cruijsen & Jakob de Haan & David-Jan Jansen & Robert Mosch, 2011. "Household savings behaviour in crisis times," DNB Working Papers 315, Netherlands Central Bank, Research Department.
    23. Victor Stango & Jonathan Zinman, 2009. "Exponential Growth Bias and Household Finance," Journal of Finance, American Finance Association, vol. 64(6), pages 2807-2849, December.
    24. Mitchell, Olivia S. & Lusardi, Annamaria (ed.), 2011. "Financial Literacy: Implications for Retirement Security and the Financial Marketplace," OUP Catalogue, Oxford University Press, number 9780199696819, November.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gathergood, John, 2012. "Self-control, financial literacy and consumer over-indebtedness," Journal of Economic Psychology, Elsevier, vol. 33(3), pages 590-602.
    2. Annamaria Lusardi & Olivia S. Mitchell, 2014. "The Economic Importance of Financial Literacy: Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 52(1), pages 5-44, March.
    3. Oscar A. Stolper & Andreas Walter, 2017. "Financial literacy, financial advice, and financial behavior," Journal of Business Economics, Springer, vol. 87(5), pages 581-643, July.
    4. Richard Disney & John Gathergood, 2011. "Financial Literacy ad Indebtedness: New Evidence for UK Consumers," Discussion Papers 11/05, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
    5. Keane, M.P. & Thorp, S., 2016. "Complex Decision Making," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 661-709, Elsevier.
    6. Michael P. Keane & Susan Thorp, 2016. "Complex Decision Making: The Roles of Cognitive Limitations, Cognitive Decline and Ageing," Economics Papers 2016-W10, Economics Group, Nuffield College, University of Oxford.
    7. Kadoya, Yoshihiko & Khan, Mostafa Saidur Rahim, 2020. "What determines financial literacy in Japan?," Journal of Pension Economics and Finance, Cambridge University Press, vol. 19(3), pages 353-371, July.
    8. French, Declan & McKillop, Donal, 2016. "Financial literacy and over-indebtedness in low-income households," International Review of Financial Analysis, Elsevier, vol. 48(C), pages 1-11.
    9. 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.
    10. Cordero, José Manuel & Gil, María & Pedraja Chaparro, Francisco, 2016. "Exploring the effect of financial literacy courses on student achievement: a cross-country approach using PISA 2012 data," MPRA Paper 75474, University Library of Munich, Germany.
    11. Francisco Gomes & Michael Haliassos & Tarun Ramadorai, 2021. "Household Finance," Journal of Economic Literature, American Economic Association, vol. 59(3), pages 919-1000, September.
    12. Grohmann, Antonia & Kouwenberg, Roy & Menkhoff, Lukas, 2015. "Childhood roots of financial literacy," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 114-133.
    13. Bannier, Christina E. & Neubert, Milena, 2016. "Actual and perceived financial sophistication and wealth accumulation: The role of education and gender," CFS Working Paper Series 528, Center for Financial Studies (CFS).
    14. Gathergood, John & Weber, Jörg, 2014. "Self-control, financial literacy & the co-holding puzzle," Journal of Economic Behavior & Organization, Elsevier, vol. 107(PB), pages 455-469.
    15. Duca, John V. & Kumar, Anil, 2014. "Financial literacy and mortgage equity withdrawals," Journal of Urban Economics, Elsevier, vol. 80(C), pages 62-75.
    16. Bose, Udichibarna & MacDonald, Ronald & Tsoukas, Serafeim, 2015. "Education and the local equity bias around the world," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 65-88.
    17. Calcagno, Riccardo & Monticone, Chiara, 2015. "Financial literacy and the demand for financial advice," Journal of Banking & Finance, Elsevier, vol. 50(C), pages 363-380.
    18. Feng, Xiangnan & Lu, Bin & Song, Xinyuan & Ma, Shuang, 2019. "Financial literacy and household finances: A Bayesian two-part latent variable modeling approach," Journal of Empirical Finance, Elsevier, vol. 51(C), pages 119-137.
    19. Almenberg, Johan & Dreber, Anna, 2015. "Gender, stock market participation and financial literacy," Economics Letters, Elsevier, vol. 137(C), pages 140-142.
    20. Travis P. Mountain & Namhoon Kim & Joyce Serido & Soyeon Shim, 2021. "Does Type of Financial Learning Matter for Young Adults’ Objective Financial Knowledge and Financial Behaviors? A Longitudinal and Mediation Analysis," Journal of Family and Economic Issues, Springer, vol. 42(1), pages 113-132, March.

    More about this item

    Keywords

    Financial literacy; Consumer credit; Debt portfolios;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:7:p:2246-2254. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://www.elsevier.com/locate/jbf .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jbf .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.