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Household Optimism and Overborrowing

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  • ARI HYYTINEN
  • HANNA PUTKURI

Abstract

We use Finnish household‐level data from 1994 to 2013 to measure how often and what kind of forecast errors households make and how the errors are linked to the households' borrowing behavior and overindebtedness. We find that those households that make the largest optimistic forecast errors have greater debt‐to‐income ratios. They also are more likely to report that they suffer from excessive debt loads and have problems in coping with their bills. There are no such systematic effects for the households that make pessimistic forecast errors.

Suggested Citation

  • Ari Hyytinen & Hanna Putkuri, 2018. "Household Optimism and Overborrowing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(1), pages 55-76, February.
    • Handle: RePEc:wly:jmoncb:v:50:y:2018:i:1:p:55-76
    DOI: 10.1111/jmcb.12453
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    References listed on IDEAS

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    3. Grohmann, Antonia & Menkhoff, Lukas & Merkle, Christoph & Schmacker, Renke, 2025. "Earn More Tomorrow: Overconfidence, Income Expectations, and Consumer Indebtedness," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 57(5), pages 1071-1102.
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    6. Lim, Sung Soo & Bone, Matthew, 2022. "Optimism, debt accumulation, and business growth," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 97(C).
    7. Tuomas Takalo, 2019. "Regulation of short-term consumer credits," Journal of Banking Regulation, Palgrave Macmillan, vol. 20(4), pages 348-354, December.
    8. Annamaria Lusardi & Olivia S. Mitchell & Noemi Oggero, 2020. "Debt and Financial Vulnerability on the Verge of Retirement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(5), pages 1005-1034, August.
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    14. Jie Zhou, 2022. "Debt, Financial Vulnerability, and Repayment Behaviour in Older Canadian Households," Canadian Public Policy, University of Toronto Press, vol. 48(1), pages 108-123, March.

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