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Towards more sustainable debt attitudes and behaviors: the importance of basic economic skills

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  • Michael Goedde-Menke

    (University of California, Los Angeles
    University of Münster)

  • Carsten Erner

    (University of California, Los Angeles
    University of Münster)

  • Michael Oberste

    (University of Münster)

Abstract

This research builds on the idea that debt-related financial distress faced by an individual results primarily from the inability to understand and apply fundamental economic concepts to debt decisions rather than from a lack of highly specific financial knowledge. This notion offers a potential explanation for why current financial literacy programs, which generally focus on the latter aspect, are considered to be mostly ineffective. We hypothesize that the understanding of fundamental economic concepts plays an essential role in explaining debt attitudes and behaviors. To test this hypothesis, we empirically examine how basic economic skills relate to these traits among German adolescents while controlling for their levels of financial literacy. Our results indicate that basic economic skills beneficially relate to both individual debt attitudes and behaviors. In contrast, we do not find a significant impact of financial literacy. Therefore, a stronger consideration of fundamental economic concepts in financial literacy programs might be a fruitful way to increase their effectiveness.

Suggested Citation

  • Michael Goedde-Menke & Carsten Erner & Michael Oberste, 2017. "Towards more sustainable debt attitudes and behaviors: the importance of basic economic skills," Journal of Business Economics, Springer, vol. 87(5), pages 645-668, July.
    • Handle: RePEc:spr:jbecon:v:87:y:2017:i:5:d:10.1007_s11573-017-0854-8
    DOI: 10.1007/s11573-017-0854-8
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    Cited by:

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    2. 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.
    3. Maria Forlicz & Tomasz Rolczynski, 2020. "Relationship Between Personal Debt Arrears and Risk Attitude– Cross Country Evidence," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 586-599.

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    More about this item

    Keywords

    Financial literacy; Economic literacy; Economic education; Debt attitude; Debt behavior;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D18 - Microeconomics - - Household Behavior - - - Consumer Protection

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