Leverage or Bias? The Debt Behavior of High-Income Consumers

This paper asks whether debt among affluent consumers reflects rational leverage, comparable to firms, or the influence of cognitive biases. Using survey data on Brazilian bank clients, we combine logistic regressions with a finite-mixture-inspired, rule-based classification and a test based on a ten-business-day overdraft grace period to identify heterogeneity in borrowing behavior. In the high-income subsample, Cognitive Reflection Test scores are unrelated to debt incidence, diverging from prior evidence in mixed-income populations. Among indebted affluent respondents, most borrowing is cost-sensitive and consistent with deliberate leverage (about 80 percent), while a minority displays patterns consistent with optimism bias and overconfidence (about 20 percent). The institutional feature of a temporary grace period lowers the effective cost of short-term credit and is associated with a marked reduction in overdraft use, reinforcing the leverage interpretation. Overall, consumer debt is heterogeneous; for the affluent, it largely aligns with leverage, though behavioral biases persist at the margins. Policy for high-income borrowers should prioritize targeted measures that address optimism bias and overconfidence while preserving deliberate leverage management through clear disclosures and monitoring of sensitivity to short-term credit costs.