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The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance

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  • Jonathan Crook

Abstract

This paper investigates first the factors which determine whether a household is likely to be rejected or discouraged from applying for credit and second, which factors explain the amount of debt which a household demands. All of the published papers which have addressed the first question have used data relating to the period 1978-1983 or, in one case only, 1984-1989. All the papers which have investigated the second question have used data for the earlier period only. In this paper data for 1990-1995 from the latest version of the Survey of Consumer Finance are used. A univariate probit model with standard errors corrected for sampling weights is used to shed light on the first question and a bivariate probit model followed by a two stage least squares selection model to estimate the demand for debt. Results are found which are similar to those for the earlier years and some new ones. In common with earlier results it is found that a household demands less debt when the head of the household is aged over 55 years and when the head is relatively risk averse. A household demands more debt when its income is higher, when it owns its own home, when the family size is larger and the head is working. It was also found that the result of being black increases the probability of being credit constrained but it does not increase a household's demand for debt. This is therefore a result found consistently for the late 1980s through to the early 1990s. In addition to these results which are in common with earlier papers for earlier periods it was also found that if a household has a large expected expenditure in the next few years it demands a larger amount of debt now, that the higher the net worth of a household the less debt it desires and that a household's expectations concerning future interest rates has no effect on its demand for debt.

Suggested Citation

  • Jonathan Crook, 2001. "The demand for household debt in the USA: evidence from the 1995 Survey of Consumer Finance," Applied Financial Economics, Taylor & Francis Journals, vol. 11(1), pages 83-91.
  • Handle: RePEc:taf:apfiec:v:11:y:2001:i:1:p:83-91
    DOI: 10.1080/09603100150210291
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    1. repec:bla:jconsa:v:51:y:2017:i:2:p:380-405 is not listed on IDEAS
    2. repec:pal:jorsoc:v:60:y:2009:i:12:d:10.1057_jors.2008.130 is not listed on IDEAS
    3. Brunetti, M. & Ciciretti, R. & Djordjevic, Lj., 2016. "The determinants of household’s bank switching," Journal of Financial Stability, Elsevier, vol. 26(C), pages 175-189.
    4. Brown, Sarah & Taylor, Karl, 2014. "Household finances and the ‘Big Five’ personality traits," Journal of Economic Psychology, Elsevier, vol. 45(C), pages 197-212.
    5. Luis E. Arango & Lina Cardona-Sosa, 2015. "Determinants of consumer credit within a debt constrained framework. Evidence from microdata," BORRADORES DE ECONOMIA 013965, BANCO DE LA REPÚBLICA.
    6. repec:eee:joinma:v:27:y:2013:i:2:p:83-97 is not listed on IDEAS
    7. Stefano Cosma & Francesco Pattarin, 2012. "Attitudes, personality factors and household debt decisions: A study of consumer credit," Centro Studi di Banca e Finanza (CEFIN) (Center for Studies in Banking and Finance) 12021, Universita di Modena e Reggio Emilia, Dipartimento di Economia "Marco Biagi".
    8. Christoph Kneiding & Alexander S. Kritikos, 2013. "Funding self-employment -- the role of consumer credit," Applied Economics, Taylor & Francis Journals, vol. 45(13), pages 1741-1749, May.
    9. Brown, Sarah & Taylor, Karl & Wheatley Price, Stephen, 2005. "Debt and distress: Evaluating the psychological cost of credit," Journal of Economic Psychology, Elsevier, vol. 26(5), pages 642-663, October.
    10. Mukasa Adamon N. & Anthony M. Simpasa & Adeleke Oluwole Salami, 2017. "Working Paper 247 - Credit constraints and farm productivity: Micro-level evidence from smallholder farmers in Ethiopia," Working Paper Series 2356, African Development Bank.
    11. Sarah Brown & Gaia Garino & Karl Taylor, 2008. "Household Finances and Attitudes towards Risk," Working Papers 2008005, The University of Sheffield, Department of Economics, revised Dec 2009.
    12. Brown, Sarah & Ghosh, Pulak & Su, Li & Taylor, Karl, 2015. "Modelling household finances: A Bayesian approach to a multivariate two-part model," Journal of Empirical Finance, Elsevier, vol. 33(C), pages 190-207.
    13. Ke Chen Chen & Mali Chivakul, 2008. "What Drives Household Borrowing and Credit Constraints? Evidence from Bosnia and Herzegovina," IMF Working Papers 08/202, International Monetary Fund.
    14. Jonathan Crook & Stefan Hochguertel, 2007. "US and European Household Debt and Credit Constraints," Tinbergen Institute Discussion Papers 07-087/3, Tinbergen Institute.
    15. Rui Yao & Deanna Sharpe & Elizabeth Gorham, 2011. "An Exploratory Study of Chinese Americans’ Debt Ownership," Journal of Family and Economic Issues, Springer, vol. 32(4), pages 600-611, December.
    16. Paradiso, Antonio & Kumar, Saten & Lucchetta, Marcella, 2014. "Investigating the US consumer credit determinants using linear and non-linear cointegration techniques," Economic Modelling, Elsevier, vol. 42(C), pages 20-28.
    17. Okechukwu Anyamele, 2015. "Racial/Ethnic Differences in Household Loan Delinquency Rate," The Review of Black Political Economy, Springer;National Economic Association, vol. 42(4), pages 415-442, December.
    18. Drakos, Konstantinos & Giannakopoulos, Nicholas, 2011. "On the determinants of credit rationing: Firm-level evidence from transition countries," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1773-1790.
    19. Merike Kukk, 2014. "Distinguishing the Components of Household Financial Wealth: the Impact of Liabilities on Assets in Euro Area Countries," Proceedings of International Academic Conferences 0100418, International Institute of Social and Economic Sciences.
    20. Mary Eschelbach Hansen & Julie Routzahn, 2014. "Gender Differences in Attitudes Toward Debt and Financial Position: The Impact of the Great Recession," Working Papers 2014-10, American University, Department of Economics.
    21. Saten Kumar, 2016. "Is the US Consumer Credit Asymmetric?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 63(2), pages 194-215, May.
    22. Rodríguez-Planas, Núria, 2018. "Mortgage Finance and Culture," IZA Discussion Papers 11316, Institute for the Study of Labor (IZA).
    23. repec:cml:incocp:7sp-05 is not listed on IDEAS
    24. E. Pastrapa & C. Apostolopoulos, 2015. "Estimating Determinants of Borrowing: Evidence from Greece," Journal of Family and Economic Issues, Springer, vol. 36(2), pages 210-223, June.
    25. Atte Oksanen & Mikko Aaltonen & Kati Rantala, 2015. "Social Determinants of Debt Problems in a Nordic Welfare State: a Finnish Register-Based Study," Journal of Consumer Policy, Springer, vol. 38(3), pages 229-246, September.

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