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Self-control, financial literacy & the co-holding puzzle

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  • Gathergood, John
  • Weber, Jörg

Abstract

We use UK survey data to analyze the puzzling co-existence of high cost revolving consumer credit alongside low yield liquid savings in household balance sheets, which we name the ‘co-holding puzzle’. Approximately 12% of households in our sample co-hold, on average, £3800 of revolving consumer credit on which they incur interest charges, even though they could immediately pay down all this debt using their liquid assets. Co-holders are typically more financially literate, with above average income and education. In most estimates co-holding is also associated with impulsive spending behavior on the part of the household. Our results provide empirical support to theoretical models in which households co-hold as a means of managing self-control problems.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:jeborg:v:107:y:2014:i:pb:p:455-469
    DOI: 10.1016/j.jebo.2014.04.018
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    Keywords

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    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D10 - Microeconomics - - Household Behavior - - - General
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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